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(T, R(N,α,p)) INVENTORY POLICY FOR A FMCG RETAIL SUPPLY CHAIN
Prasun Kumar Das and Susanta Kumar Gauri

Indian Statistical Institute
Kolkata, India
dasprasun[at]rediffmail.com

Indian Statistical Institute
Kolkata, India
susantagauri[at]hotmail.com


Abstract

Introduction: The scope of this study is limited to the supply chain of a FMCG retail business spreading through retail outlets and connected with the central warehouse. Manual intervention of requisitioning quantity of footwear on daily basis, from the retail outlets to the warehouse, was creating frequent problems of both stock-out resulting loss of sale and higher inventory resulting higher holding cost. Instead, both can be within an acceptable level if the requisitioning quantity truly considers the sale/demand distribution. The objective of this study was, therefore, to develop a scientific inventory policy for determination of requisitioning quantity for footwear, based on actual sales of all outlets. Methods: Considering the size wise break-up, daily sales data of sampled items of sampled outlets, spread over various states, was captured for two consecutive years along with records of re-order levels (ROL). It was observed from the time plots that both mean and variability of demand change over time. The extreme values of observed sales distribution of items accommodate both the effects of mean and variability, and, change in time points reflects the seasonal/festive effects on mean and variability. With this understanding, a simple exponential smoothing model, using pth percentile point of distribution of daily sales data for past recent N days, is proposed for determination of requisitioning quantity. Keeping in mind that the overall stock-out% should remain at a low level, the optimal values of N, α and p were determined empirically as 30 days, 0.3 and 0.99 respectively based on daily sales of randomly selected items from first year data. Results: The usefulness of the model was validated against the daily sales data of randomly selected footwear items of second year prior to its implementation across outlets. First, the stock-out% and average inventory, that actually occurred based on the earlier subjective method, were estimated. Then, they were estimated using the fitted model for determination of the requisitioning quantity. It was further noted that the average inventory would have reduced by 31% without increase in average stock-out%, and the sales to inventory ratio would have increased by 75%. Conclusions: Determination of requisitioning quantities for footwear items, using the fitted model at fixed interval of one month, would reduce average inventory and thus holding cost without increasing average stock-out%. However during festive/seasonal period, the interval for ROL modification should not exceed seven days to absorb the sudden change of demand pattern. The overall requisitioning quantity for items in outstation outlets is the sum of the requisitioning quantities determined by the fitted model and lead-time demand. Software has been developed for calculating the requisitioning quantity of any item at any day in an outlet, using the fitted model. Subsequently, the cost-benefit analysis was done on new sale data to sho

Keywords: FMCG Retail, Supply Chain, Exponential Smoothing, Requisitioning Quantity, Stock-out, holding cost

Topic: Operation and Supply Chain

Link: https://ifory.id/abstract/Gj4XzLqcm2Pp

Conference: The 3rd Asia Pacific Management Research Conference (APMRC 2019)

Plain Format | Corresponding Author (PRASUN KUMAR DAS)

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