Ateneo de Davao University

Application of OSCM Concepts

KMGI Enterprise

Presented to: Mr. Jose Jorge Yap Jr.

In Partial fulfillment of the requirements in

MGT 428- MWF 1:30-2:30 J206

Auriferous Group

Group members:

Brandon Arcena

David Cuestas

Reynalin Entia

Snow-Reeham Halud

Harvey Lu

Nishahera Mangumpig

Mary Grace Oculam

Lj Quilos

Vinn Hadrian Tan

March 15, 2017

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 Table of Contents

I. Company Background & profile 2

II. Finding the Current Observations 5

A. Strategy 5

B. Design of products and services 5

C. Strategic capacity management 8

D. Manufacturing/ operation process 9

E. Facility layout 9

F. Service processes 11

G. Quality management & six sigma 11

H. Lean supply chain 12

I. Logistics, distribution and transportation 13

J. Inventory management 14

K. Materials requirement planning 16

III. Application of OSCM Concepts 17

IV. Conclusions, Summary and Recommendations 19

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 I. COMPANY BACKGROUND AND PROFILE

B. History

KMGI Enterprise began as a home-based business that started selling household

items such as clothes, shoes, kids bikes and plates. The company started in the front

yard of the house of the owner. Merchandise items are set in their little yard and

neighbors would come every afternoon to shop. A few months after, more clients started

coming over to the owners residence to purchase these imported surplus goods from

Japan. Word traveled fast and later more clients flock to the location, making it difficult

to accommodate customers in the said yard. This event caused the owner to decide on

opening a physical shop to cater to the growing demands of the business.

Thus, on 2012, their first shop was opened in Matina Pangi, Ma-a Diversion

Road. The area is now four hundred square meters larger compared to what originally

was a small front yard. Operations lasted for 6 months in the said location, until

complaints about the parking inconvenience for customers arose. This issue pushed the

owner to decide to temporarily stop the operations and look for a better venue to

continue the business she started.

The business re-launched year 2013 in Mintal, Davao City. The location is six

hundred square meters large with a building for stock room, and a much bigger space

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for customer parking. From there onward, the business operated at its permanent

location in Mintal.

B. Products or services

KMGI Enterprise centered on importing and selling Japan Surplus goods ranging

from motoparts, autoparts, bicycle parts, stuffed toys, slightly used apparel which is

more popularly called ukay-ukay; household goods (plates, cups, kitchen utensils,

furnitures), appliances, speakers, tires, musical instruments, hand tools; sports and

fitness equipments; bicycles of various brands and sizes, tractors, motorcycles and

used cars.

In addition to the merchandise they sell, services such as bike repairs and

assembly were also offered to customers who purchase bicycles from the shop. They

also offer tire replacement assistance to first-time tire purchasers. Additionally, the

company also serves as a supplier to distant bulk buyers who wish to resell in far-flung

provinces such as Zamboanga, Cotabato, Gensan, and Kidapawan.

C. Supply chain: Sourcing, Outsourcing, Customer Market

The Surplus goods are sourced from Japan. This merchandise are actually what

the Japanese refer to as gomi or in English, garbage. This concept, however, is not

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to be taken literally. What the Japanese call as garbage are actually goods that have

been only slightly used or not even used at all.

In Japan, when people move from an apartment to a new one, they would usually

leave their things behind and buy new ones for the new apartment. People would pay

gomi collectors to gather all these old stuff and to get rid of them. Gomi collectors then

gather the old furnitures, household goods, and whatever is asked of them to throw

away; and then load them into 30-40-foot container vans. When one container is filled

with these goods, it is then sent to the Philippines and sold as what we come to know

Japan Surplus goods.

This business thrives with a targeted market of customers that vary widely. The

market can be children for the surplus toys, bikes, and kids goods. It also caters to

adults, men and women alike, young and old. Most importantly, it covers a broad market

of household owners who prefer to buy household goods at a slightly lower price, but

with the quality and design of imported Japan merchandise.

KMGI Enterprise utilizes outsourcing only when times that inventory drops, container

shipments are delayed, and customer demand remains high. The company outsources

merchandise from neighboring Surplus Shops like Galactic Surplus Shop (importer of

Japan, Indian and Australian Surplus goods), which is its colleague in the industry.

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 II. FINDINGS AND OBSERVATIONS ON CURRENT COMPANY PRACTICES

A. Strategy

Out of the Triple Bottom Line dimensions, the entity addresses only two of three;

particularly the Social and Economic dimensions. For Social, KMGI Enterprise does

charity works by giving remaining ukay-ukays to street children and sending off clothes

in times of calamities. In this way, the company is able to serve socially, and give back

in kind. Also, the shop welcomes government employees and workers with free snacks

and discounts as an acknowledgement of the service this sector is rendering to the

public. This is also to maintain goodwill and friendly business customs in the

environment it thrives in.

Of course, as a sole proprietorship entity, the main objective of the owner is to

earn profit by delivering quality goods and offering them at reasonable prices to the

mass. This is done so without jeopardizing the business and its capabilities to generate

income. Despite being a profit-oriented business, a sideline objective of the owner is to

serve the community by granting access to household necessities and goods in a way

that is affordable to people of the lower-income bracket.

B. Design of products and services

The Generic Product Development Process of the KGMI Enterprise includes the

Planning Phase, Concept Development, System level design, Detail Design, Testing

and refinement. In planning Phase, the owner conducts her own feasibility study to see

if establishing a business in that location can bring profit. Unfortunately on her first

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physical store, the owner forgot to undergo this process which led to a lapse in

consideration with regards the parking space for the customers. This resulted to the

temporary halt of business, in order to find again a more appropriate location for the

business to operate. Three months after, the owner re-launched her business in her

new location in Mintal, Davao City.

The next phase is the Concept Development. Here the ownertalks to people

randomly and ask them survey questions as to what type of surplus goods they wish to

purchase. This phase can help the owner to know what the people want to buy thus

improving the rate of inventory sales.

After that phase is the System Level Design. In this phase, the owner lists all of

the items that are saleable like plates and bikes. And the listed items are the things that

should be prioritized when ordering from the supplier. The next phase is the Detail

Design. In this phase the owner develops a marketing plan to increase the business

profit. The owner gives fliers and free t-shirts to the customer to disseminate the

information about the growing business. The owner also uses social media such as

Facebook for the benefit of the business. The final phase is the Testing and refinement

phase. This is where the promotion and launch of the materials happen. Majority of

theitems that the business sells usually lasts only for two to three days, after unloading

of recent container shipment. Remaining inventory is sold throughout the month until the

next batch of merchandise arrives here in the Philippines.

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 Service products are designed considering two of the three of the general

factors. These are as follows:

a. Similarity to Current Services

This means that the new service should fit into the current service

experience for the customer. Originally, KMGI Enterprise only assembles

bicycles without allowing the customer to add any parts that are bought outside

the business. But later on, the business included selling custom parts and caters

bicycle customization provided that the bicycle and other parts are bought from

the shop. This gives the customer an added satisfaction and convenience to their

experience from the shop.

b. Similarity to Current Process

Not all of the customers of KMGI Enterprise have their own means of

transportation. Hence, there arises at times, a problem with item mobilization and

delivery. Because of such reason, the entity sought to find ways in assisting their

customers in transporting their purchased items. Recently, the enterprise added

to their list of services house-to-house delivery, charging additional cost for it on

the customer.

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Process design and analysis

In this line of business, products do not necessarily undergo any process since it

is engaged in retail. The processes required are merely minor repairs, minute

refurbishing, and cleaning. The business itself also does not give much attention to

these processes, according to the proprietor. The standard operating procedure for

such concern is to address problems when necessary; meaning, if the item needs to be

repaired, it is repaired; if it only needs refurbishing or cleaning, it is refurbished and

cleaned.

Job design decisions are what concern the business most. Given that the entity

operates on a limited number of employees, it is necessary to employ the concept of

specialization of labor. Specialization of labor is very crucial to the success of the

business day-to-day operations. One employee is assigned as cashier, the other is

assigned to maintain cleanliness, and the third is mainly responsible for security of the

shop. When one problem arises in any of those areas of concern money, cleanliness,

and securitythe employee entrusted with the task is to be made liable.

C. Strategic capacity management

From the day the entity changes its location which is in Mintal, there is more

space for the supplies storage and much bigger place for customer accommodation

included to it is the parking. Usually the supplies arrival is planned ahead by the owner

to balance the inventory level that should be maintain by the entity in its storage room.

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One of the advantages of this business is less hassle for the production because

products available were already physically done.

Planning Service Capacity

Time

The entitys products are not perishable which consumed time before

being sold. Thats why the entity chooses bigger location for the products stay in

the inventory.

Location

Most of the customer is in middle class which can afford vehicles going on

the location. There are no problems for transportation of goods.

D. Manufacturing / Operation Process

This chapter discusses the processes use in producing tangible goods or the goods

available in the market. Since KMGI Enterprise is not a manufacturing company the

concepts tackled in this chapter are not applicable to it.

E. Facility Layout

In a manufacturing company it is important to properly layout the workplace for faster

production. The objective of this is to arrange elements of productions in a way that

ensures a smooth workflow in a factory or in a particular traffic in a service entity. Out of

the four (4) most common layouts none of it is applicable to our adopted company;

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KMGI Enterprise is a retail company so we will be applying the concepts of Retail

Service Layout.

Retail Service Layout

A retail store requires comprehensive marketing planning, from

determining the products being sold to how the in-store advertising materials will

be displayed. Part of that planning is developing effective retail layout strategies.

Each retail store needs to address basic strategy concepts, monitor customer

response to any strategies used, and make changes that improve sales. The

objective of this layout is to maximize net profit per square foot of store space;

KMGI is a 700 square meter wide, it allows a good walking space for customers.

FIREWALL FIREWALL FIREWALL

KITCHEN UTENSILS
FURNITURE & HOUSE GOODS
FIREWALL

KITCHEN UTENSILS
OFFICE POWER GATE
TOOLS

APPLIANCES
TOYS
FIREWALL

WASTE F F F
STORAGE U U U SITTING AREA
ROOM
ROOM R R R
N N N
FENCE

I I I STUFFED TOYS BICYCLES

T T T
FIREWALL

U U U
R R R
E E E UKAY-UKAY

FIREWALL FIREWALL FIREWALL

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 F. Service Processes

KMGI Enterprise offers different kinds of surplus goods from Japan. Some of the

goods that they offer are toys, plates, clothes, small vehicles and furniture. Knowing

that these goods are surplus, sometimes the customers want to have changes to the

small vehicles that they want to buy. Usually the customers want to add additional

parts, change certain parts or anything that make improvement to the vehicle. The

KMGI Enterprise value the customers personal preference, so they decided to

provide services to the customer that provides satisfaction to them.

When the customer already chosen the desire type of vehicle, he will then be ask if

there is anything that he wanted to change, He will be assisted by one of the staff of

KMGI Enterprise until the very end of the transaction to make the customer feel

valued.

G. Quality management & Six Sigma

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 Out of the multiple tools use in six sigma or total quality management, we choose

to use histogram to present our observation to the companys common problems.

Histogram is a display of statistical information that uses rectangles to show the

frequency of data items in successive numerical intervals of equal size. Based on our

observation there are 6 major problems in our adopted company. First is the inventory,

since KMGI sells surplus goods it is hard to the owner to properly account the number

of the products available; like the ukay-ukay. Second is the pricing, the company to

determine the price of the goods usually the owner only compare to those prices in

another retails store which sells the same products, it is hard to determine the proper

cost of the products since from its nature these are already used goods which are sold

to the market. Third is the personnel, the company only have three regular customer

attendants which also do all the work, from the delivery to the disposal of the damage

goods. Fourth is the storage, there is small space for storage of products. Lastly are

damages and waste, since the goods were surplus it is in its nature that there some that

cannot be use totally so it will be sold to the junk shops for a cheaper price just to have

its value.

H. Lean Supply Chains

Most businesses from the past 50 years use lean production which focuses on

eliminating waste as much as possible. Non value added process are targets for

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improvement during the learning process. In relation to our company the applicable

concept is lean services since our company offer services to customers.

a. Lean Services

Lean Retail Background Traditionally, the retail industry has been focusing on

early technology adoption as a major driver to improve its bottom line. In the 1980s

unique packaging codes/barcodes together with point-of-sales systems were

implemented to boost efficiency and accuracy. In the 1990s more complex planning

tools for forecasting, merchandising, warehousing/distribution, and pricing were

introduced to retail operations.

Process and organizational improvement through Lean is capable of addressing

most challenges in the retail merchandise life cycle while creating significant and

tangible value for retailers through continuous satisfaction and overachievement of

customer needs.

I. Logistics, distribution and transportation

The company uses water (ship) as a way of transportation, and from the vessel it

then carried by a truck to the entities area. Through shipments the company acquire a

larger amount of goods with a lesser price. Though the transit time is long but it is not a

problem.

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 With the old location of the company their problem it was far away from the

customers and it has small area. By then the company relocate its location in Mintal,

Davao City for convenience of their customer and for a greater area.

The transportation modes that the KMGI Enterprise use are both highway (truck)

and water (ship) mode. When a Japanese wants to change their residence or home,

they usually just leave their things behind or give it out to people. Some of these things

are items of clothes, shoes, kids' bikes and plates. These items are the goods that the

KMGI Enterprise sells in the Philippines. They are gathered by KMGI's supplier and

loaded in a container van, which is then transported through a water vessel which

eventually reaches the port of Davao City. After that, the container van is transferred to

a container truck and then delivered to their store in Mintal, Davao City.

J. Inventory management

KMGI Enterprise is a retail merchandiser which sells surplus goods from other

countries but mostly from Japan. Inventory management is applicable in this type of

business as the company needs to have inventory to generate revenue. KMGI

Enterprise employs the multi-period inventory system ***fixed-order quantity model but

the company does not strictly follow the model due to the nature of its business.

Although it does not have a forecast for demand needed for the formula, the method the

company is using is the Saw tooth model because it will add only to the store when

there are minimal to zero inventory at hand. Moreover, the inventory to be sold at the

store comes from abroad so the lead time may vary because of the logistics part of the

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business. Cycle counting is rarely done due to lack of personnel in the company but still

inventory is checked because the owner is hands-on in the business so this part is

closely monitored.

KMGI Enterprise is a retail merchandiser which sells surplus goods from other

countries but mostly from Japan. Inventory management is applicable in this type of

business as the company needs to have inventory to generate revenue. The company

which is in the wholesale/retailing business has different situation in inventory costs as

they acquire their inventory outside the Philippines. There is usually no shortage cost

because mostly the products are not in demand in the market that stock-outs happen.

Ordering costs are insignificant as the supplier in Japan and KMGI management

communicate through internet-based free messaging services. Also, inventory does not

need careful monitoring as these are used or surplus items. However, setup costs and

holding costs are big because of the situation of how the inventory is obtained and

stored. Setup costs are significantly big because when the inventory arrives in the store,

the facility layout is being modified in order to fit the inventory which has arrived.

Holding cost are also significantly big because there are a lot of items to be inventoried

and the personnel needed also incurs costs.

KMGI Enterprise employs the multi-period inventory system fixed-time period

model, having their inventory arrive every two months from Japan to the store. But the

company does not have a safety stock due to the situation of the business; assortment

of products are to be sold coming from Japan without the input of preference of the

management and inventory levels of each product are not determined at all. Lead times

are unpredictable at times so there is uncertainty in forecasting but not every time as

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the logistics may take shorter delivery times or not. Cycle counting is done every two

weeks not by the staff but by the owner herself.

K. Materials requirement planning

KMGI enterprise is a retail entity, where it sells surplus goods, it does not

manufacture anything. Since this chapters focus is about manufacturing companies,

most concepts are not applicable to KMGI. The only concept we can apply in this

chapter is the inventory control of the goods. The company usually ship goods in bulk

from Japan. Since then it has many stored goods in its shelf and also in the storage.

The personnel in charge records the number of goods in the shelf and in storage. It is

also controlled through physical counting of how many are already sold and when

should the company buy another shipment of the goods.

KMGI cannot make good use of Material Requirement Planning since they are

retail shop. MRP is most valuable in companies involved in assembly and KMGI sells

products that are already assembled when it arrives in their warehouse. Master

Production Scheduling also cannot be applied by KMGI since they do not have

manufacturing processes.

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III. APPLICATIONS AND RECOMMENDATIONS

a. We presented the store layout above, we observed that the companys floor

layout is well planned. We decided not to have any revision to it because as we

observe, it is a customer oriented arrangement. The customers have the wide space to

walk in, the products were properly organized and the facilities are complete.

b. As in relation to the services offered by the KMGI Enterprise we can apply the

concept of Personal-attention approach. The store started already to offer services to

customers who buy defective products; they offer to correct the defects for free.

Through we come up to the idea of offering customized products which is from the

surplus the company will try to customize the products based on the demand of the

customers.

c. The total number of the rate of the problems are 37 and 80% of it is 29.6 which

comprises the 4 major problems such as inventory, pricing, personnel, and storage.

Since it is in the nature of the company to have defective products we cannot do

anything about it. We will try to advice the owner to add more personnel and allocate

the task to each individual, to have a smooth flow of serving and less hassle in the

employee.

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 KMGI Enterprise Pareto Chart
12

10
rate of occurrence

10
8
8
6
6
4 5
4 4
2

0
inventory pricing personnel storage damages waste
problems

d. Lean Services

As a company which offers services to customer, it is important to ensure the

certainty and variability of the service offered. To eliminate the unnecessary activities of

the company, the KMGI owner should delegate the task in each personnel for better

performance.

e. Logistics, Distribution and Transportation

We can apply the concept of RORO or Roll on, roll off because from Japan the

goods are transported by a ship to Davao and it is carried by a truck to the area of the

company. The company already has its best location because Mintal area is a big

municipality and it has many people there by.

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III. CONCLUSIONS, SUMMARY AND RECOMMENDATIONS

KMGI Enterprise is a retail business that is centered on importing and selling

Japan surplus goods. In addition to the merchandise they sell, they also offer services

such as bike repairs and assembly. The Surplus goods are sourced from Japan. This

merchandise is actually what the Japanese refer to as gomi or in English, garbage.

This concept, however, is not to be taken literally because what the Japanese call as

garbage is actually goods that have been only slightly used or not even used at all.

KMGI started as a home-based business that started selling household items

and as its popularity grew, more and more customers came to know of its existence. In

this line of business, products do not necessarily undergo any process since it is

engaged in retail. As of today they are based on Mintal having moved from Ma-a, their

initial location. From the day the entity changed its location which is in Mintal, there is

more space for the supplies storage and much bigger place for customer

accommodation included to it is the parking.

The company uses water (ship) as a way of transportation, and from the vessel it

then carried by a truck to the entities area. Through shipments the company acquires a

larger amount of goods with a lesser price, though the transit time is long but it is not a

problem. The Entity addresses only to the Social and Economic Dimension out of the

Triple Bottom Line Dimensions. This is also to maintain goodwill and friendly business

customs in the environment it thrives in.

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 The entity already had arrange a very good store layout, which give the customer

a much bigger space to walk in and a better view of the products offered. Through the

sex sigma methodologies we identify six problems that the company had, namely,

inventory, pricing, personnel, storage, damages and waste. Based on the pareto

principle out of the six we can solve the four primary problems, it has been the nature

of the company that normally its products have defects when delivered and this defects

can be considered as waste. We cannot do anything about those two problems.

Through proper delegation of duties and routine counting of inventory, we can

reduce the problem in inventory. Adding at least two additional personnel is

recommended so that it is less hassle with the workforce in the company and the work

is done by each assignment. Since the product of the company is already used or let

say a second hand product, it is really hard for the owner to assign a proper price to

each product. But having a fixed rate may be helpful, the owner can add up fixed rate

from the cost of the goods, in order to determine its price. Or he shall continue

comparing to other surplus company, but it is much hassle. Thus KMGI already had its

good management and it requires only a little revisions of some matter stated above.

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