Operations Management Project

Operations Management ProjectReport on Inventory Management at Paris Bakery

Submitted to:

Submitted By: Mr. Manimay Ghosh

Group 2Group membersRoll No.

Aditi SahuUM14006

Prajakta ChavanUM14021

Akansha JainUM14027

Krishna Kumari SahooUM14029

Sathamchetty BalachanderUM14049

Sourabh Ranjan KhuntiaUM14055

ACKNOWLEDGEMENT

It gives us immense pleasure to express our sincere thanks to all those who helped us in the compilation of this project to study the inventory management in a bakery shop- Paris Bakery. First of all, we would like to thank our Operations Management II faculty, Prof. Manimay Ghosh who gave us the opportunity to conduct this study and for his constant guidance & support throughout.

We would also like to thank Mr. Sudhir Yadav, Manager at Paris Bakery, Jaydev Vihar for providing us with information about the inventory and procurement practices in his organisation.

Table of ContentsIntroduction1Business Layout1Inventory1Inventory Cost2Level of inventory3Inventory control Techniques4ABC analysis4VED analysis6

FSN analysis6

First In First Out6Inventory Turnove..........6Issues Faced in the Outlet and Factory6

Recommendations & Conclusion6Introduction:Paris Bakery has been started in the city of Bhubaneswar to provide an entire range of bakery products under one roof. The shop has ultra manufacturing facility and state of the art technology. From its inception, it has been able to position itself as a bakery shop providing a variety of vegetarian products. The products range from muffin, rusk, dry cake, gujhiya and puff, cakes, pastries, pudding, tarts and mousse, chocolate, bread, bun, Crossants and khulcha, loaf and pizza base, cookies. Thus one has numerous options inside a Paris Bakery.The stores at Jaydev Vihar and Shaheed Nagar are franchisee stores. They have constantly going for expansion of their stores. Another store will now be functioning from Cuttack. They have a presence on social media and have an online system of ordering various products available in their stores. Thus it wants its customers to be able to enjoy the various services at their convenience.

Business Layout:

Example of a Baking process:

Inventory:Inventory is the stock of items that is held by the organization to meet demands. It ensures that there are no shortages or overstocking of the raw materials or the finished products. An inventory system is the set of policies and controls that monitor levels of inventory and determines the level it should maintain, and when the stock should be replenished, and how large the orders should be. Keeping high levels of inventory would mean increase in the production costs and having low inventory carries a risk of shortages during production and hence facing stock outs.

Inventory comprises of the following things.

Raw materials: Raw materials are required to carry out production activities uninterruptedly. Raw material in bakery factory includes grocery items such as whole wheat, Maida flour, food color, flavor oil, salt, sugar etc., which they order in wholesale and perishable items such as fruits, yeast, egg, milk etc. that are bought on daily basis. Work in progress: The work in progress is that stage of stocks, which are semi-finished products. These include burger buns, hotdog buns, pizza base etc.

Finished goods: There are the goods, which are ready for the consumers. In Paris Bakery, the end-products are cake, pastry, bread, cookies, chocolate. The production is undertaken on requirement basis, not on a fixed basis.

Packaging: Packaging material used for packing cakes, bread, cookies etc. Paris bakery buys these materials in wholesale from suppliers outside Odisha and stores them in its warehouse. There is minimal to zero wastage as these materials have very long life time.Some of the key features of ideal inventory are

A Well-Stocked Bakery Inventory

For this, the bakery should to have a proper ordering system in place. Its weekly sales must beprojected first. Projecting the sales before placing the bakerys order will ensure that the correct amount of product is ordered.

A Well-Organized Bakery Inventory

A well-organizedinventorywill not only makelocatingspecific items easier for bakerys employees, but it will also provide more attractive visual which will make the entire back room seem well kept. Properly organizing theinventorywill also prevent cross-contamination of food products

A Clean Bakery Inventory

Aninventorymust remain clean at all times to always remain effective. The likelihood of pests in the back room which are often attracted by the dark spaces and unlimited food quantity can be removed by maintaining a clean inventory. The daily and weekly cleaningchecklistsshould be created for the area to maintaininventorycleanliness.Inventory costs:Inventory brings with it a number of costs. This cost can be due to space requirement, material handling, etc to breakage and theft also. The different types of costs are:-

1. Holding (or carrying) Cost: (Warehouse): The holding cost consists of the cost of the storage facilities i.e. rent, electricity, handling of material, interest charges, tax, insurance, salary, software for maintain inventory status etc. If the holding cost is high then the company has to maintain a low level of inventory.

The holding costs of the Paris Bakery factory/warehouse are as follows:

Electricity Rs 50000/month

Rent- Rs 80000/month

Employee salary- Rs 3.5 lakhs/ month (70-80 employees)

The holding costs of the Paris Bakery outlet at Jaydev Vihar are as follows:

Electricity Rs 10000/month

Rent- Rs 30000/month

Employee salary- Rs 15000/ month (3 employees)

2. Ordering costs: It consists of the costs that are associated with placing the order and receiving it, regardless of the inventory size. It refers to the transportation costs, counting items and calculating order quantities, price negotiation, purchase order generation, follow-up, inspecting materials for quality etc.

The ordering costs of the Paris Bakery factory/warehouse which includes the transportation cost is Rs 60000-70000/ month.

3. Shortage costs: The shortage costs occurs when there is a shortage of stocks or the stock is not available, so an order for that item must wait until the stock is replenished or cancelled. A trade-off exists between carrying stock and the costs resulting from stock out. There will be a loss of profit, loss of goodwill and late charges.

4. Set-up Costs: The Set-up costs is the costs incurred when the firm produces its own inventory, the costs of setting up of the machines such as arranging tools, drawings, cleaning the machine etc.The initial costs of the Paris Bakery factory/warehouse which includes the machine setup cost is 2.5 crores.

Level of inventory:1. Size of order: The quantity of items ordered by the Paris Bakery outlet per day is as follows: Pastries 60

Cake - 10

Cookies 2 kg per variety (order triggered only at reorder point)

Snacks 50

Bread 352. Time of order: The time of items ordered by the Paris Bakery outlet is as follows: Pastries order comes in morning

Cake - order comes in twice

Cookies - order comes in twice

Snacks order comes in twice

Bread order comes in morning

3. Lead time: Time between placing an order and its receipt.The Lead time of the various raw materials required at the Paris Bakery factory/warehouse are as follows:

Grocery items like flour, sugar, chemicals, colours , choclates etc 15 days

Perishable items like milk, vegetables etc 1 day

The lead time of various items available at Paris Bakery outlet at Jaydev Vihar is as follows:

Pastries 1 day

Cake- 1 day

Cookies -1 day

Snacks 1 day

Bread -1 day4. Reorder point: The inventory level at which a new order should be placed.

The Lead time of the various raw materials required at the Paris Bakery factory/warehouse are as follows:

Grocery items like flour , sugar, chemicals, colours , choclates etc Stock of 2 days left

Perishable items like milk , vegetables etc Stock of 2 days left

The lead time of various items available at Paris Bakery outlet at Jaydev Vihar is as follows:

Pastries 2-3 pieces per variety

Cake as per order

Cookies - 500 gm

Snacks 1 day 2 pieces per variety

Bread -1 day 2 pieces per varietyInventory control techniques: ABC Analysis:

It is one the widely used techniques for the control of inventory. Objective of ABC control is to vary the expenses associated with maintaining appropriate control according to the potential savings associated with the proper level of such a control. A may account for more than half the total value usage in the inventory. These items require very careful management and careful estimates. Generally, class C items which in total account for only a small percent of the total value of usage, requires very little effort to be devoted to forecast the of items. The intermediate class B items justify a reasonable but routine effort in forecasting demands and managing inventory.

Item NameDaily DemandUnit CostDaily Rupee ValueClassification

Cakes8Rs 700 (per kg)Rs 5600A

Bread60Rs 40Rs 2400A

Cookies7kgRs 300 (per kg)Rs 2100A

Muffins/Pastries40Rs 50Rs 2000B

Snacks30Rs 50Rs 1500B

Burgers/Hot Dogs20Rs 60Rs 1200C

Pizzas10Rs 120Rs 1200C

Gujiya1.4kgRs 275 (per kg)Rs 385

C

VED Analysis:

The materials classification on the items is called VED analysis.

V-Vital items which render the requirement or the whole line operation in the process totally and immediately inoperative, unsafe and if these items go out of stock or not readily available, results in losses of whole production of whole period.

E-Essential items which reduce the equipments performance but not render it inoperative or unsafe. The non-availability of items may result in temporary loss of production or dislocation of production work. The replacement can be done without any delay and without affecting the equipments performance seriously

D-Desirable items which are mostly non functional and dont affect the performance of the equipment. According to the observations we made in Paris Bakery, materials can be classified as

Vital: Flour, Milk, Sugar, Butter, WaterxEssential: Cocoa Powder, Cream

Desirable: Chocolates, Nuts, Food Colour, Fruits

FSN Analysis:

Materials can be classified on the basis of movement as fast moving, slow moving and non-moving according to their consumption patterns. FSN analysis is especially useful to combat obsolete items whether spare parts, raw material or component. Cut off points of three classes are usually in items of number of issues in previous few years depends on the peculiarities of an individual concern. FSN items in the shop are as follows-Fast Moving: Cakes, Cookies, Bread

Slow Moving: Pastries, Snacks

Non-Moving: Chocolates

First In First Out:

This method assumes that the first unit making its way inventory is first sold. Due to the fluctuations in the economy and the risk of higher cost of producing goods over time, businesses use FIFO to be more profitable. For example, Paris bakery prepares pastries at regular intervals to stock in the refrigerator. As customers purchase pastries, the stockers push the oldest product to the front of the fridge and replace newer pastries behind those old ones. The pastries prepared two three days back are thus the ones first sold, whereas the later prepared pastries are sold after the older pastries. This ensures that older products are sold before they perish or become obsolete, and result in loss. Inventory Turnover:

It is the ratio showing how many times a company's inventory is sold and replaced over the period observed. The total number of the days in the period is then divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days."

Inventory turnover = Sales/Inventory = Cost of Goods Sold/Average Inventory

This ratio is compared against industry averages. If the turnover ratio is low then it suggests poor sales and, hence, excess inventory. If the turnover ratio is high it suggests that it has either strong sales or ineffective buying. The high inventory levels are not healthy because they represent an investment where the rate of return is zero. The company is prone to trouble if the prices begin to fall.

Inventory Turnover for Retailer (Jaydev Vihar store) = Sales/Inventory = Rs 20000/ Rs 11400 = 1.754

Inventory Turnover for Factory = Sales/Inventory = Rs 80000/ Rs 36000 = 2.222

Issues Faced in the Bakery Outlet and Factory:

10% wastage happens per day for products whose shelf life is less, because of manual forecasting. Inventory is being maintained at both retail stores & warehouse. Large no. of Pan-India suppliers are difficult to manage. New stores setup within a short distance is not effective in increasing sales and hence margin is getting hampered. Recommendations and Conclusion:

Using the data so collected, ABC, FSN, VED and FIFO analysis was done. We found that the following

They are currently using a software for accounting purpose. We recommend use of efficient forecasting software to take care of seasonal variation in demand. FIFO should be followed & practiced more rigorously to avoid loss that may occur due to the shelf life of product being low. Currently the management does not follow any scientific methodology for managing inventory; we suggest using the ABC classification to classify.