SID: 311100597, 311077285, 311081827, 311059279, 310146887

SECRET SQUIRREL STATIONERY ANALYSIS

REPORT

Name
Student ID

Jing Li
311100597

Pornthip Kanlayanalap
311077285

Tian Qin
311081827
Shanju Liu
311059279

Xin Li
310146887

Course: TPTM5001 Logistics & Supply Chain Management

Assignment: Group Assignment

Date of Submission: 27th October 2011

SID: 311100597, 311077285, 311081827, 311059279, 310146887

Synopsis

This report is made by MAX Consultant based on the interviews with general
manager and other four department managers of Secret Squirrel Stationary (SSS).
The objective of this report is to analyse the critical operational issues that leads to
SSS Companys poor performance in profitability recently, and provide proper
solutions for those related problems in terms of general, finance, marketing, sales,
warehouse and inventory management, especially focusing on the warehouse and
inventory operational aspect. The potential benefits can be brought by those
recommendations are also presented. The detailed implementation timeframe and
budget are provided for this organizational reform in the end.
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Table of Content

1. INTRODUCTION 1X

2. GENERAL MANAGEMENT 1X

2.1 Current General Situation 1X

2.2 General Analysis 1X

2.3 Recommendations and Benefits 2X

3. FINANCIAL MANAGEMENT 4X

3.1 Current Financial Situation 4X

3.2 Financial Analysis 4X

3.2.1 Stock Write-off Cost 4X

3.2.2 Asset Structure 5X

3.3 Recommendations and Benefits 5X

4. MARKETING AND SALES MANAGEMENT 6X

4.1 Current Marketing and Sales Situation 6X

4.2 Marketing and Sales Analysis 6X

4.2.1 High investment in marketing 6X

4.2.2 Ineffective advertising strategy 7X

4.2.3 Improper demand forecasting 7X

4.2.4 Limited target group 7X

4.2.5 Sales analysis 8X

4.3 Recommendations and Benefits 9X

5. WAREHOUSE AND OPERATION MANAGEMENT 10X

5.1 Current Warehouse and Operation Situation 10X

5.2 Warehouse and Operation Analysis 11X

5.2.1 Operation Analysis 11X

5.2.2 Warehouse Location 12X

5.2.3 Warehouse Lay Out 12X

5.3 Recommendations and Benefits 13X

5.3.1 Warehouse Location 13X

5.3.2 Warehouse Lay Out 13X

5.3.3 Radio frequency identification (RFID) 14X

6. INVENTORY MANAGEMENT 14X

6.1 Current Inventory Situation 14X

6.2 Inventory Analysis 14X

6.3 Recommendations and Benefits 15X

6.3.1 Reorder point 15X

6.3.2 ABC analysis (Pareto analysis) 15X

6.3.3 Safety stock 16X

6.3.4 Training program 16X

7. IMPLEMENTATION TIMEFRAME AND BUDGET 17X

8. CONCLUSION 17X

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Reference 18X

Appendix 19X
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1. INTRODUCTION

The target company of this report is a subsidiary company, Secret Squirrel Stationery
(SSS), wholly owned by its US parent company specializes in fashionable stationery.
At present, SSS performs well in Australian market with a 15% market share and plan
to reach 25% market share in the future. However, after a previous five years rapid
growth, the net profit of SSS decreased significantly in 2010.

This report will analyse the operations of SSS in terms of general, financial, sales,
marketing, warehouse and inventory aspects, and provide proper solutions to better
its efficiency and profitability. The detailed implementation timeframe and budget are
provided for this organizational reform as well.

2. GENERAL MANAGEMENT

2.1 Current General Situation

Alan is the General Manager of SSS. The current organizational structure of SSS
consists of four major divisions: 1) Finance/ Administration2) Sales3) Marketing
4) Operation. With all products of SSS designed and shipped from its parent company
in US, the SSS general management team only need focus on the marketing and
distribution in Australia. Providing the best quality to customers is considered to be
the core competitive advantage of SSS.

2.2 General Analysis

The organization structure plays an important role in corporate operation. However,

the irrational structure of SSS would result in an ineffective operation mechanism.

Finance and administration are two crucial parts in a company. It is not a wise move to
combine these two parts into a department because they have different
responsibilities for the company. This structure makes the function of this department
complex and disorder. And this also means that the workload of this department
doubled other department, especially Paul.

Apart from that, some positions such as accounts payable, accounts receivable,
accountant and brand managers are overlapped. Simultaneously, some positions like
customer services and IT system are posed under wrong departments. The absence of
human resource management unit can lead to a potential disaster for SSS.
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2.3 Recommendations and Benefits

The General Manager might have to rearrange the organization structure for the sake
of internal efficiency.

The administration part should be independent from the finance/administration

department with IT, Reception and a newly created HR unit. A new manager needs to
assign to manage the administration department.

In finance department, the overlapped positions should be abolished and a

budgeting position should be set up for the sake of controlling overspending in less
productive areas.

Customer services should be transferred from finance/administration department to

marketing department.

One of the band managers needs to be replaced by another assistant brand

management.

The following Figure 2.1 explains the new organizational structure in details.
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Figure 2.1 SSS new organizational structure

General manager (Alan)

P.A.

Finance (Paul) Sales (Stella)Marketing (Barbara) Operations (John) Administration

Accounts Payable
State Manager Vic
State Manager

State Manager
Agency

Brand Manager
Invetory Planner

Reception

/ SA
NSW / Tas
Queensland / NT
Distributor W.A.

Gary
Accounts Receivable

Sales Rep (2)

Sales Rep (2)

Sales Rep (2)

Assistant Brand Manager

Warehouse Operators in Vic

IT Support
(4)

Warehouse Operators

Accountant

Party Planners (7)

Party Planners (7)

Party Planners (6)

Customer service (2)

in NSW(3)
HR

(Including 1 manager)

Budgeting
IT Logistic system
Management

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3. FINANCIAL MANAGEMENT

3.1 Current Financial Situation

The financial management of SSS is mainly formed by three staffs under the Finance
and Administration division headed by Paul. They are in charge of budget planning,
finance reporting and audit, and payables and receivables administration. The detailed
financial information of actual profit and loss for last five years is indicated in the Table
3.1.

Table 3.1: Actual P&L for Last 5 Years

Actual P&L For Last 5 Years

Budget

2006

2007
2008
2009
2010

2011
Sales

$14,275,000

$20,153,300
$24,711,300
$27,321,000
$29,249,000

$32,000,000

Total COGS

$8,136,750

$11,688,914
$12,849,876
$15,846,180
$16,580,000

$17,600,000
Gross Profit

$6,138,250

$8,464,386
$11,861,424
$11,474,820
$12,669,000

$14,400,000

Operating Costs

$5,272,700

$7,350,200
$9,750,500
$9,873,000
$10,180,000

$11,200,000
Stock Write-off

$17,500

$93,500
$154,000
$73,000
$1,200,000

$500,000

Taxes

$254,400

$306,200
$587,100
$458,600
$461,000

$810,000

Net Profit

$593,650

$714,486
$1,369,824
$1,070,220
$828,000

$1,890,000

Gross Margin

43.00%

42.00%
48.00%
42.00%
43.31%

45.00%

Net Margin

4.16%

3.55%
5.54%
3.92%
2.83%

5.91%
Sales Growth Rate

41.18%
22.62%
10.56%
7.06%

9.41%

3.2 Financial Analysis

3.2.1 Stock Write-off Cost

As can be seen from Table 3.1, the sales of SSS increased gradually from 2006 to 2010,
while the net profit rose from 2006 to 2008 and then experienced a noticeable decline
after 2008. The gross margin sustained around 45% with very little change in the
previous five years, while the net margin experienced a decrease on the whole and
reached the lowest point 2.83% in 2010. From Chart 3.2, we can see that the cost of
stock write-off practically increased every year except for a short decrease in 2009. In
2010, there was a striking stock write-off cost ($1,200,000), compared with the
previous years tiny cost ($73,000), and this was the first time for SSS that the stock
write-off cost overweighed the net profit. It is obvious that the main reason for the
decline in net profit should be the sudden jump in stock write-off cost after 2009. Some
actions should be taken to achieve a lower stock write-off cost $500,000 in 2011.

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Chart 3.2 Net Profit & Stock Write-off Fluctuation in 2006-2010

3.2.2 Asset Structure

There is another asset structure problem can be found by analysing the specific data of
2010 in Table 3.3. It is noticeable that inventory occupied approximately 91% of the
whole assets. Although reasonable inventory can buffer supply and demand
uncertainties, the excessive inventory can lead to high logistic and operational costs.
The high inventory proportion also resulted in a bad asset structure. Specifically, cash
was only $129,000, less than 1.6% of the whole assets. Low cash proportion can lead to
low cash liquidity. As the quick ratio is only 0.3271:1, much lower than the empirical
statistics 1:1(Anonymous, 2005), the short-term liquidity of SSS is relatively weak. This
means that SSS does not have sufficient liquid cash to deal with emergencies.
Additionally, the lack of cash can lead to high capital cost, since SSS may have to borrow
money from financial market to support its normal operation. It is reasonable for SSS to
decrease the inventory proportion in its whole assets and maintain proper cash
proportion to ensure company normal operation.X

Table 3.3 Assets and Liabilities of Secret Squirrel Stationery in 2010

Inventory

Cash
Receivables

Current

Current

Current

Quick

Cost Of

assets
liabilities

ratio

ratio

Capital

$7,492,000

$129,000

$607,000

$8,228,000

$2,250,000

3.6569:1

0.3271:1

10%
3.3 Recommendations and Benefits

To achieve the goal of 2011 budget, the stock write-off cost should be decreased over
50% compared with that in 2010. Apart from that, the proportion of inventory in the
whole assets of SSS should be reduced as well. These goals cannot be fulfilled without
consideration of the overall operational flaws in the sector of marketing, sales,
warehouse and inventory.

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Apart from that, it is also feasible for SSS to negotiate with buyers and creditors to
shorten the period of reclaiming the receivables and extend the period to pay
liabilities for the sake of enhancing the cash proportion in the whole assets.

4. MARKETING AND SALES MANAGEMENT

4.1 Current Marketing and Sales Situation

Marketing plays a vital role in operating business successful as it contracts customers

directly and enhances a great relationship with them. A good marketing decision can
increase the financial sales and profits. Marketing cost, advertising method, demand
forecasting and target group should be taken into consideration by SSS Company in
making the correct marketing decision. In addition, the history sales data also can be
analysed to help the company to make the right sales strategy.

4.2 Marketing and Sales Analysis

4.2.1 High investment in marketing

As can be seen from the chart 4.1, it is showed that there is high investment in
marketing at 37%. Even though it is slightly lower than sales overhead at 41%, the
sales division is the most important part to enhance the profit to a stationary
company without production department. Comparing with the high marketing cost,
SSS Company spends little money on logistics, which is 6%. However, logistics is of
most importance to control inventory and meet customer demand in terms of
delivering the products on time.

Chart 4.1 the breakdown of operation costs

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4.2.2 Ineffective advertising strategy

There are two main points which should be considered in this strategy. Firstly, the
advertising channels, the company mainly advertises their products through radio
programs and magazines which is obsolete advertising method and cannot access to a
wide range of customers. Secondly, lacking of brand awareness, the companys brand
is infamous and is not easily recognizable. As a result, the products cannot attract
more customers.

4.2.3 Improper demand forecasting

Improper demand forecasting might be another issue to hinder the development of

Secret Squirrel Stationery Company. All the products are produced by the parent
company located in Unite States, which is lead to the ignorance of the demand of the
local market in Australia. However, the customer demand in the production is not the
same due to the culture diversity. This inaccuracy of demand forecasting might hamper
the achievement of the market share target of SSS Company from 15% now to 25% in the
future. Apart from that, the information of monthly demand should be taken into
account by SSS Company. For instance, March, October and November are the best sale
three months. To find the reason why it is popular in these seasons is useful to forecast
the correct customer demand to make the best marketing decision.

4.2.4 Limited target group

SSS Companys target customers are 35-65 housewives. However, to increase the
market share by 10% within five years, this target group is limited. If SSS Company
insists to focus on their original target customers, the future is not as bright as they
think. Because the fashion style product in stationary is not popular among
housewives in this range of ages.
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4.2.5 Sales analysis

Chart 4.2 Annual sales divided by categories

Table 4.3 Annual sales divided by categories

ITEM
VALUE
PERCENTAGE

ALBUM
$ 8,813,624.54
33%

Refill Pages
$ 3,745,080.90
14%
Cover set
$ 2,215,895.00
8%

Bat
$ 1,475,754.00
5%

Penguin
$ 1,398,906.00
5%

Ant
$ 1,179,318.75
4%

Decorating Simple
$ 1,069,228.60
4%

Card
$ 960,885.71
4%

Funky Thing
$ 917,675.00
3%

Handbook
$ 728,820.40
3%

OTHERS
$ 4,446,190
16%
Pareto analysis is a method of classify items of products which is 80% of sales are from
20% of products (Pienaar and Vogt, 2009).This can help explain the sales of SSS
Company situation that Top 10 categories, 726 types, which includes around 20% type
of products account for 84% revenues while other 16 categories almost 80% products
only contribute to 16% in SSS Companys revenues. Album is the best sale category in
this company. The following two categories are refill pages and cover set which is 14%
and 8% respectively.X

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4.3 Recommendations and Benefits

To optimize the resource of SSS Company, the marketing expenditure should be

reduced through some more useful advertising channels and effective research. On
the other hand, logistics should be more concentrated in order to increase efficiency
of operation in SSS Company.

Improving the advertising strategy, the company should increase more channels in
order to access to a large number of customers. For example, advertising through
internet such as Facebook and Twitter would make target group more easily access to
products as these software are becoming popular communicating method among
them. In addition, the company should develop brand awareness by creating slogan,
advertising and adding value through packaging, service and special events
(Gustafson and Chabot, 2007).X

In terms of improper demand forecasting, EDI (Electronic Data Interchange) is useful

to SSS Company achieving their market share target. EDI is a method to exchange the
statistics and conduct it automated through internet between trade partners
according to the business standard(Kantor and Burrows, 1996). The reduction of the
cost of stocks, the decrease the probability of errors in progress, improvement of the
relationship between suppliers and customers, and a stronger competitive power are
the main benefits brought by EDI system to SSS Company. In addition, the local
market preference and seasonal demand which are collected by EDI system play an
important role in making a correct marketing direction. Apart from that, some
questionnaires and market research not only help SSS Company get information they
need, but can be another type of advertisement.X

Another thing should be considered is the extension of target group as fashion is the
key characteristic of SSS Companys product and young generation is more likely keep
pace with the latest fashion. Creating potential customers including young generation
might be good choice to increase the market share to 25%.

As to sales department, to maximize the companys profit, sales strategy should be

focused on these top 10 products. Meanwhile, reducing the inventory of other type
products can shrink the cost of stock write-off to minimize the operating cost.
Furthermore, the reliable sales forecasting can reduce the loss of the company
because of avoiding wrong actions such as unnecessary safe stock or impropriate
marketing promotions. Therefore the viable sales forecasting based on the historical
sales data is necessary to a good inventory management which is very important in
SSS Company providing products relying on inventory. And the historical sales
information and the sales forecasting in 2011 are showed in the below graphs.
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Chart 4.4 Sales by Month in 2010

Table 4.5 Sales by Month in 2010 and forecasting in 2011

month

sales in2010

Monthly Proportion in 2010

forecasting in2011

January
$1,852,000

6%

2,026,188.93

February

$2,550,500

9%

2,790,386.00

March

$3,183,870

11%

3,483,327.29

April

$2,275,300

8%

2,489,302.20

May

$2,163,520

7%

2,367,008.79
June

$2,000,040

7%

2,188,152.76

July

$1,802,670

6%

1,972,219.22

August

$1,954,880

7%

2,138,745.26

September

$1,873,000

6%

2,049,164.07

October

$3,275,720

11%

3,583,816.20

November

$3,392,200

12%

3,711,251.67
December

$2,925,300

10%

3,200,437.62

total

$29,249,000

32,000,000
5. WAREHOUSE AND OPERATION MANAGEMENT

5.1 Current Warehouse and Operation Situation

Warehouse management is an important sector of SSS logistics function. Currently, SSS

owns only one warehouse in Melbourne. Once ordered, products are delivered from
the warehouse to demanding places across Australia. A warehouse management
system WISE is implemented with little help, and the average pick-up time for products
is about 2 or 3 days.

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5.2 Warehouse and Operation Analysis

5.2.1 Operation Analysis

From Chart 5.1, a number of reasons which lead to out of stocks on warehouse
supplied item have been demonstrated: Store personnel unaware of potential OOS
Condition Did Not Order Item and Promotion Forecasting and Ordering are the two
main reasons (54% and 19% respectively). Hence, unaware of potential OOS
Condition and Promotion Forecasting play the core role in OOS.

Chart 5.1 the key result in out-of-stocks on warehouse supplied items.

Source: Retailer Operating Data, Prism Partner Store Audits, Coca Cola Retail Council Independent Study, 1996

Forecasting a key Cause of Out of Stocks on Warehouse

Supplied Items
Store Personnel Unaware of

Current/Potential OOS
Condition Did Not Order
3%
8% Item
Promotion Forecasting and
54%
Ordering
16%

Shelf Capacity Inadequate

19%

Backroom/Display Inventory

Not Restocked To Shelf

Lack of effective IT tools, SSS Company could just rely on experiences to predict
future needs. There is no doubt that forecasting is still regarded as a critical way for
business. Forecasting is not only making predictable plans and formulating programs
but also refer to the shipment and sales history to predict future needs. Based on the
process of operation management, a series of uncertainties may affect the
replenishment which could not all be eliminated by relying on forecasts.

SSS Company lacks of several IT tools such as EDI and VMI program which could
precede the operation function and this company might be difficult to understand
the information about the inventory level of distribution centre in time(Anonymous,
2011). Additionally, the old WISE information system is unable to reach the growing
demand of the warehouse management. When one kind of stationery is out of stock
in distribution centre, SSS Company could hardly dispatch the products immediately
to its customers, which could have a negative influence upon the transaction.X

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5.2.2 Warehouse Location

The reasonable route for international shipment between SSS and its parent company
in USA is crossing the Pacific, along the southeast coast of Australia. It is a reality that
Melbourne is the deliver centre of SSS Company. However, the distance is obviously
longer and it takes more time than delivering the products to Sydney.

Furthermore, the data of the percentage of sales in Australia is showed in Figure 5.2:

Figure 5.2 Sales in Australia

According to the map, New South Wales occupies 38% of the total products which is the
biggest part, followed by the other two parts along the east coast, Victoria and
Queensland (25% and 21% respectively). According to above, SSS Company may build a
new warehouse in Sydney and the distribution centre should be transferred from
Melbourne to Sydney. Then, both the total routine of delivery inland and the routine
between the warehouse and the US parents company could be cut down significantly.
More specifically, the delivery cost and delivery time could be decreased greatly.

5.2.3 Warehouse Lay Out

Researches on design requirements and principle constraints of the location and the
warehouse are very important. However, the operational manager of SSS Company
made an inappropriate decision that the layout does not allow goods to flow in a
straight line. Hence, it is time-consuming for workers to walk around and pick up the
goods which reduce the movement efficiency in the warehouse.

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The lay out of products in the warehouse is disordered. Workers, basically, place the
products where they normally place it and memorize the location. As a result, when
products are urgently needed and the location is unknown, it could result in the delay
in delivery process and lead to the inefficient operation. Moreover, the containers are
place on the ground. As a result, it may damage the products. Also, it could need
more time and effort to lift the containers up from the ground.

5.3 Recommendations and Benefits

5.3.1 Warehouse Location

Therefore, in a long-term strategy, building a new warehouse in Sydney and

transferring the distribution centre from Melbourne to Sydney. It is not only because
of the cost aspect, but also better to promote the future market in New Zealand.

5.3.2 Warehouse Lay Out

Due to the disordered layout in the warehouse, employees can only find the required
products based on their memories. Significantly, the unprofessional conduct
increases costs, inefficiency, and delivery inaccuracy. The introduction of ERP resolves
such problems. Also, employees that are unqualified need further training. In
addition, the new warehouse lay out will be build following the figure 5.3.

Figure 5.3 New warehouse lay-out

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5.3.3 Radio frequency identification (RFID)

The old WISE is already out of time so that Radio Frequency Identification (RFID)
could be replaced it. RFID, adopted by multinational corporations like Wal-Mart and
Kimberly-Clark(Liu, 2003), is an excellent carrier technique in supply chain
management. This system would effectively get rid of the occurred errors during the
internal transportation. Furthermore, RFID is able to integrate into the whole supply
chain for company, which is improving both efficiency and effectiveness
simultaneously.X

6. INVENTORY MANAGEMENT

6.1 Current Inventory Situation

Inventory management, specifically headed by Gary, performs a key role in the

overall supply chain. Proper handling of storage, internal transport, and write-off of
bad inventory are included in the inventory operations. At current stage, there are
over 2000 products being stored and the number of demanded products is
forecasted every month.

6.2 Inventory Analysis

The most intractable problem in the past year is that the value of the inventory is an
extremely high level. The financial statement indicates that SSS possesses $7,492,000
of inventory that accounts for more than 91.05% of the total assets ($8,228,000)
currently and the write-off is $1,200,000. This is not a good signal for the
development of the company. Furthermore, the large amount of inventory can also
result in a rise of the inventory cost (Hanna and Newman, 2007), which will mirror in
the operation of the SSS and need to be taken into consideration. In addition, there
are some issues of stock outs incurring the loss in sales.X

After the interview with Inventory Planner Gary, the inefficient way to forecast the
stock leads to overstocks in the warehouse (Mangan et al., 2008). Produce 1 (See
Appendix I) was a good example for inaccurate forecast. The value of SOH (stock on
hand) was 10376, which was accumulation overstock of previous months. And the
forecasts for next months were not rational because the historical data was not
considered, which led to the increase value of overstocks. When it came to 2000
items, it would be worse.X

Further is that SSS did not deploy suitable methodologies for inventory planning and
control. In terms of safety stock, seasonality existed in some special months based on
the sales in 2010, but the safety stock seems stay in a relatively certain level.
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6.3 Recommendations and Benefits

In order to advance the level of inventory management, some recommendations will

be given to tackle the current issues for SSS.

6.3.1 Reorder point

MAX recommends that calculating economic order quantity (EOQ) could be exerted
to determine the optimum order quantity because it is a trade-off or balance
between inventory-ordering costs and inventory-carrying cost (Pienaar and Vogt,
2009). The following formula indicates the calculation of EOQ:X
EOQ = 2 /

Where A = cost of an order

S = annual sales or demand in units

C = annual inventory-carrying cost percentage V = value or cost of one unit

The reorder point (ROP) tends to address the issue of the new order when there are
some stocks in the inventory(Pienaar and Vogt, 2009). It will calculate by:X
ROP = D T

Where ROP = reorder point in units

D = average daily (or weekly) demand in units T = average lead time in days (or
weeks)

The reorder point system to some degree will optimize the stock in a reliable level.
Via calculating, it can probably answer the question of how much to order and
when to order? (Pienaar and Vogt, 2009). In another way, it will help to avoid
excess stocks, which would result in a more effective and efficient inventory planning
in terms of accurate forecasting(Horng -Jinh and Po-Yu, 2008).X

6.3.2 ABC analysis (Pareto analysis)

ABC analysis can be utilised in inventory classification. As is seen in the product list,
there are 2013 items. Only around 700 items were sold in the previous years. By
sorting the data according to the annual turnovers of these products, the items could
be classified as follow (see Table 6.1):

Class A: 10 per cent of Items contributing 58.9 per cent of turnover value Class B: 20 per
cent of Items contributing 26 per cent of turnover value Class C: 70 per cent of Items
contributing 15.1 per cent of turnover value
Table 6.1 Class ABC for SSSs Items

Class
Item percentage
turnover value(%)
A
10%
58.9
B
20%
26
C
70%
15.1
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In the inventory, Class A is the most important part and Gary need to monitor them
all the time with a daily frequency in order to guarantee the market demand. Also
because of that, they need to be recorded and forecasted more accurately.
Comparatively, Class B also required some concerns due to the percentage of
contributing turnover but less than Class A in terms of monitoring, recording and
forecasting. On contrast, it is unnecessary to spend too much time on Class C.

Doing so, the inventory will be controlled in a satisfied level and not leading the issue
of over-stocks. ABC classification will help to achieve a decreasing cost in inventory
and contribute to reducing the operating costs(Starbek et al., 2000).X

6.3.3 Safety stock

Based on the order shipment information provided, it normally takes 5-7 weeks for
the products from parent company in USA to SSS in Australia. Basically, the general
safety stock should be according to the lead times, which means 5-7 weeks for safety
stock should be planned in case. For individual products, it is highly recommended to
utilise the Mean-Median Mode, which is based on the normal distribution theory, to
forecast the safety stock. Since the standard deviation is employed in this
methodology, the forecast for safety stock would turn to be more accurate in this
point.

Furthermore, the financial report of 2010 suggests that the sales in March, October,
November and December are much higher than other months. So, the seasonality in
these 4 months should be given special concerns whilst considering the safety stock.

In this circumstance, the inventory would be minimized in some level rather than
over-stock to reduce the inventory costs at largely. After adopting the methodology,
the safety stock would be more precise to reach the demand. To be specified, SSS
may begin to increase the best-sell product and stop stocking the out-fashioned
products that zero in quantity was sold in previous years. In this case, SSS can also
benefit from decreasing the write-offs.

6.3.4 Training program

The relatively high write-offs indicate that the inventory and warehouse management
are irrational in some way. The employees in the warehouse are inexperienced and
lacking professional techniques. Therefore, the training program has to be
established for advance the employees in the near future. After training, MAX
believes that the efficiency of the inventory and warehouse would be significantly
promoted(Kaplan and Norton, 2005). By saying that, some useful techniques like
FIFO may be hired in the operation process contributing to release the loss of write-
offs and changing price in the market.X
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7. IMPLEMENTATION TIMEFRAME AND BUDGET

A timeframe table below will elaborate how long time the recommendations will be
effective and the benefits if SSS implement them.

8. CONCLUSION

The most issues of SSS are caused by deficient management system of the companys
each department. And the problems can be effectively handled by implementing
right policies and measures. By using these recommendations in the preceding
context, SSS can optimize its structure and improve the management efficiency so as
to reduce companys management cost. The company should implement these
solutions as soon as possible to gain long-term profits and to keep the competitive
advantages. Otherwise, it might be selected out by the increasing market
competition.
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Reference

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HME News, 17, 29-29.

GUSTAFSON, T. & CHABOT, B. 2007. Brand Awareness. Cornell University College of

Agriculture and Life Sciences.

HANNA, M. & NEWMAN, W. 2007. Interated Operations Management, Butterworth,

Oxford.

HORNG-JINH, C. & PO-YU, C. 2008. AN EOQ MODEL WITH CONTROLLABLE SELLING

RATE. Asia-Pacific Journal of Operational Research, 25, 151-167.

KANTOR, M. & BURROWS, J. H. 1996. Electronic Data Interchange (EDI). National

Institute of Standards and Technology.

KAPLAN, R. S. & NORTON, D. R. 2005. The Balanced Scorecard: Measures That Drive
Performance. (cover story). Harvard Business Review, 83, 172-180.

LIU, L. 2003. Survey on evolution of SCM theory and methods. Journal of

Management Sciences in China, 6, 81-87.

MANGAN, J., LALWANI, C. & BUTCHER, T. 2008. Global logistics and supply chain
management, UK, John Wiley & Sons.

PIENAAR, W. J. & VOGT, J. J. 2009. Business Logistics Management : a Supply Chain

Perspective, Oxford University Press Southern Africa (Pty) Ltd.

STARBEK, M., PETRISIC, J. & KUSAR, J. 2000. Extended ABC analysis. Strojarstvo, 42,
103-108.
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Appendix

Appendix I

Table I SSS Forecasting Stock ordering example

Appendix II
Table II Order Shipment Information 2010
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