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Operational Management
Inventory Management at
Super Sea Foods
Group Members:
Fahad Ur Rehman Khan
Syed Shehriyar Hussain
Hammad Ali Zaheer
Mudassir
Submitted to:
Abdur Rehman
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Table of Contents
Introduction __________________________________________________________________________ 3
Inventory Management _________________________________________________________________ 3
Why Inventory Management is important? _________________________________________________ 3
Introduction of Super Sea Foods_________________________________ Error! Bookmark not defined.
Notes to Financial Statements __________________________________ Error! Bookmark not defined.
Inventory at Super Sea Foods ___________________________________ Error! Bookmark not defined.
Inventory Management at Super Sea Foods _______________________ Error! Bookmark not defined.
Material Cycle Flow ___________________________________________ Error! Bookmark not defined.
ABC Analysis _________________________________________________ Error! Bookmark not defined.
Techbology Use at Super Sea Foods ______________________________ Error! Bookmark not defined.
Inventory record accuracy ______________________________________ Error! Bookmark not defined.
Inventory control of service_____________________________________ Error! Bookmark not defined.
Types of demand _____________________________________________ Error! Bookmark not defined.
Type of costs _________________________________________________ Error! Bookmark not defined.
Holding cost ____________________________________________ Error! Bookmark not defined.
Ordering cost ___________________________________________ Error! Bookmark not defined.
Setup cost ______________________________________________ Error! Bookmark not defined.
Quantity discount model _______________________________________ Error! Bookmark not defined.
Inventory cost minimization ____________________________________ Error! Bookmark not defined.
FIFO Method _________________________________________________ Error! Bookmark not defined.
Safety Stocks _________________________________________________ Error! Bookmark not defined.
Conclusion___________________________________________________ Error! Bookmark not defined.
Recommandation _____________________________________________ Error! Bookmark not defined.
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Introduction
Inventory Management
Inventory is subject to hold the certain amount of stock for the purpose of future sales. Inventory
management is about placing and shaping the goods at a certain place and managing it. Inventory
management is also about the controlling and supervising the goods stored in different places,
such as warehouses and at different locations. Inventory is one's major assets that represents the
worth of any business running in any country or in any environment. For any business the
efficient management of inventory is very important as it requires expertise in managing the
different stocks at different places at the same time.
For any business, this is to put in consideration that inventory management is one of the core
thing in the operational management which can never be neglected, because, the more you
efficiently handle your stocks, the more you will be able to provide the best and on time service
to your consumers. Consumer satisfaction is the major focus point of every organization, and for
exporting, manufacturing and retailing organizations, it is must that they assure the highest
satisfaction of their consumers in a vicinity to get more brand consciousness for their products
within a market.
Why Inventory Management is important?
The inventory management is important due to the following reasons;
To avoid the stock outs (Stock out means, that you do not have any storage of your
inventory in your warehouses).
It is also important for the storing and maintaining the right amount of inventory in your
warehouses.
Due to this you can easily take out all the unnecessary inventory from your ware houses.
Due to inventory management, you can easily avail the benefits of raised price and
quantity discount when buying in bulk.
Efficient supply.
As well as, it helps in the efficient allocation of the resources.
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Super Sea Foods
Super sea foods is one of the major enterprises operating in Pakistan. Super sea foods deals in the
seafood and the meat. Super seafood is basically the exporting company, which exports different
kinds of sea foods and meat all around the world, including United States, South Africa, United
Kingdom, Saudi Arabia, United Arab Emirates. Super seafood is operating in Karachi since
1996, and has been managing two ware houses in Karachi at different locations.
These warehouses are carrying meat and seafood differently, the efficient management of
inventory at super sea foods are making them stand out as one of the most successful exporting
enterprises working in Karachi, Pakistan.
Inventory at Super Sea Foods
There are two types of Inventories at Super Sea Foods;
1. Sea Foods
2. Red Meat
Sea Food includes wide variety such as all kind of fishes, crabs and lobsters etc. Meanwhile, Red
Meat is just a single unit at the super sea food.
Red Meat
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Super Sea Foods Warehouses
Super sea foods have two warehouses, which are located in the Karachi, Pakistan. Sea Food
Warehouse is at the Port Qasim and the Red meat warehouse is at the Korangi industrial area in
Karachi.
Inventory Management at Super Sea Foods
Inventory management is the core of any business to survive in any kind of environment;
Material Flow Cycle at Super Sea Foods:
Super sea foods purchase the raw materials in bulk quaintly form the local markets in Karachi.
Sea Food goes in the warehouse, then gets ready for packaging and then export. While, the red
meat has cows, which gets slaughtered and stored in the ware house then gets packed then
shipped all around the globe.
ABC Analysis at Super Sea Foods
For the efficient allocation of inventory, they use ABC analysis, to select the best profitable
order. Their ABC analysis has shown that their company faces the frequent orders for the sea
Pakaging
Export to destinati
on
Warehouse and
Packaging
Purchase from local
market
Red Meat
Sea Food
Karachi Markets
Warehouse
Packing
Warehouse
Also a slaughterhouse
Work In Progress
Raw Materials
Finished Goods
Export
Super Sea Foods
Warehouses
Korangi Warehouse
Port Qasim Warehouse
Stores Meat and
a slaughter house
Stores sea food
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food then red meat, so they have labeled the sea food as their A class inventory. Furthermore,
Super Sea Foods, focuses on the A class inventory which is Sea Food (Prawns and lobsters),
which is linked with the success of company. ABC analysis has helped Super Sea Foods in the
allocation of space for inventory at their warehouses. It has also helped the super sea foods in
delivering the most frequently asked products to the consumers all around the world.
Use of Technology to manage the inventory at Super Sea Foods
RFID helps tracking the inventory, and helps in reducing the cost of theft at the warehouses.
RFID helps determine the suitable sizes for the selves in the warehouse. At the super sea foods;
For the sea foods, they have used RFID very vastly because it is their crucial exporting good.
Whereas, for Red Meat they use Barcode scanners but their major focus is on sea food so they
are putting up more costs in tracking the sea food inventory at their best. According to the
interviewee, he said, Sea Food has a wide variety of items falling into same category, which can
only be managed with this RFID chips efficiently.
Inventory Record accuracy
Inventory recording helps in keeping the track of the record, such as inflows and outflows within
a company. All the records (Orders and delivery) are efficient, both are physically and on
computers have been recorded. Computerized software is taking control of all the records, such
as MS Excel. These records have showed that the demand of Sea Food is higher than the red
meat. So, they focused on sea food, meanwhile, took red meat on the other side to have their
business going.
By keeping the track of all the record, it becomes easy for the company to focus on each and
every transaction happening at the company. The computerized system of recording the data
helped the super sea foods to track the sales in real time.
Inventory Control of service
Being an ISO certified company, it is mandatory for the Super Sea Foods, to take care of all the
security procedures at their warehouses. As well as, the packaging service has ensured the each
and every little thing to focus. Super Sea Foods is efficiently educating their employees about the
inventory management as well as telling them how efficiently they can handle the inventory. The
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employees are well trained and has gone through the orientation of how and what to do. Every
employee, who gets hired, goes through the different parts, where he or she gets to know about
the exporting procedures and the inventory management system of the company. Training them
about the efficient allocation of inventory is the value addition in the control of services.
Training of employees is very essential, the manager said. He further added, the more exposure
of the management of the inventory their employees have the more soothing flow can be
observed in the company. As well as, it also helped them in shipping the highest number of
orders from super sea foods to all around the world.
Type of Demands at Super Sea Foods
Independent demand: The independent demand means that the depend is direct and is not
effected by any other thing. The independent demand at the super sea foods is for the sea food.
That’s why in the ABC analysis it showed the highest profitability of sea foods at the record of
super sea foods.
Dependent demand, in easy words the demand which is dependent (i.e. Bike and Patrol)
Meanwhile, at the super sea foods, the dependent demand is the packaging, because it is being
exported, so the buying parties demand efficient and proper packaging so their requested/ordered
product never goes waste. These products have been being exported through ships, so the buyer
put a lot of money in the packaging as well. According to the manager, sometimes the buyer
party pays the extra sum of money for the sake of getting the best possible package of their
ordered goods, but it only happens when the quantity demanded is in the high quantity.
Type of Costs at Super Sea Food
Everything comes with a cost, there are three type of costs, Ordering, setup and Holding costs.
After the interview, we found out that the super sea foods, has to deal with all kinds of costs
occurring from the buying of raw materials to the shipping of the goods to the customer.
Holding Cost
The sum of holding and stocking the inventory is the holding cost. Holding cost is the
opportunity cost, which tells that what can be the best possible allocation for the inventory.
Super sea foods, does not carry a lot of holding cost, because the business model is JIT (Just in
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Time), in other words, just in time is that when one company only manufactures or procures after
getting an order. The flow, such as inflows and outflows of inventory from purchase to supply
and then packaging is efficient and fast. Sea food and Meat, are only packaged as shipped when
the other party demands the quantity of anything. This model, the model of JIT reduces the cost
of holding the inventory in the warehouses. Otherwise, the holding costs will be high.
Ordering Cost
During the creation and processing the order, the cost occurs is called the ordering cost. As per
economic order quantity, it is the determinant of an inventory item which includes;
Total cost for the procurement.
Total cost for the purchase order.
Total cost for the supervising and locating the goods as they received.
Total cost for the sidelining the goods after receiving.
Total cost to fulfill the supplier’s demand.
It further includes the total cost of invoice sent to the supplier.
Because they purchase, then pack and supply. So, they have to focus on this cost a lot. The
ordering cost is high because being ISO certified exporting company, it is mandatory that they
put a huge cost in the process of the ordering cost.
As well as, they work efficiently, but still the ordering cost is thigh due to the factors pointed out
above, which are the core.
Setup Cost
The cost which occurred in the equipment to make an order, or item. At Super sea foods there is
only one item which is occurring the setup cost is the slaughter house for the red meat and the
packaging for the both sea food and the meat. At Super Sea Foods, the major setup cost is only,
the Packaging of the material.
Quantity Discount Model is being used at Super Sea Foods
The Quantity Discount Model (QDM) is being used at the super sea foods. Quantity Discount
Model (QDM) states that when a buyer gets the discount in buying the larger quantity. Quantity
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Discount Model (QDM) helped super sea foods in minimization of their purchase cost, which
leads to higher revenues. Because at Super Sea Foods, the parties order larger quantities so they
implement Quantity Discount Model (QDM) to get the highest possible discount on the buying
of raw materials. Quantity Discount Model (QDM) decreases the cost per units when buying the
larger amount of items. Due to Quantity Discount Model (QDM), they are able to manage the
inventory as well as minimizing the purchasing cost and generating the higher revenue.
Inventory Cost Minimization
The Quantity Discount Model (QDM) is being used at the super sea foods to minimize the
inventory cost, by buying in bulks, and reducing the cost per item. Inventory cost minimization is
very important for every organization who want to get the highest possible revenue from their
inventories. Cost minimization is also being possible when one buys the larger quantity to get the
highest possible profit. Working on JIT (Just in time) helps in reducing the holding cost at super
sea foods as well as inventory cost minimization also soothe the flow of inventories.
■ Minimization of inventory costs have benefited the Super sea food to reap the highest
revenues from the exporting sea foods and meat.
So, the inventory cost minimization is also proven to be their success factor in the exporting of
these food items all around the world. Inventory cost minimization is one of the success factors
they are trying to focus on, inventory cost minimization a lot more so they can effectively focus
on the minimization of their cost.
FIFO (First in First Out) Method
FIFO (First in, first out) model, because they prefer their customer satisfaction the crucial thing
because it soothes the flow of materials at the super sea foods as well as customers get their
things on time. FIFO (First in, first out) model helps in creating space for the future inventory to
be stored as well as it helps in storing and maintaining the space at the warehouses of super sea
foods which are located at the two places in Karachi, Pakistan.
The more efficient FIFO (First in, first out) model will be the more efficiently allocation of the
inventory will be possible at the warehouse which will create the space for the more selves and
slots for the warehouses, FIFO (First in, first out) is furthermore, the major determinant of
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Inventory Management because it will allow the inventory from raw materials to work in process
then finish goods, warehousing, from top to bottom everything will be in lane, and FIFO (First
in, first out) will help in all of this.
Safety Stocks
According to the manager, they do not focus on keeping the stock for more than 2 weeks
because, they prefer working on the JIT (Just in Time) approach.
Super sea foods, only keep just 5% of the stock of Sea Foods whereas, Red meat is stocked in the
greater amount at the warehouses. As per ABC Analysis done by the managers at the super sea
food, it has showed that the Sea Food has the highest demand of sea food than Red Meat. So, as
per the contingency planning, Super sea foods only keep the sea food in stock,. Because the flow
of sea food is very fast and on daily basis but the red meat is being stored for the longer period.
While, meat is not that high in demand. So, they have least focus on storing the meat.
Conclusion
As all of this concludes our report we are moving towards the end of this section, the conclusion
of the report has been discussed in bullet points, so the segmentation should be well
distinguished;
Super Sea Foods is one of the emerging ISO certified exporting company in the food
industry in Karachi, Pakistan which is operating wince 1997 and has been exporting sea
foods and meat in United States, South Africa, United Kingdom, Saudi Arabia, United
Arab Emirates.
Super Sea Foods uses, ABC Analysis to see which inventory is A-CLASS or in other
words, which item at super sea foods is being asked frequently. Quantity discount model
which states that one can avail discounts by buying the larger quantity materials, and this
helped super sea foods to minimize the inventory cost.
Super Sea Foods uses RFID for the management of Sea Foods while Bar code is being
used for the inventory management of red meat. RFID helps in tracking the relevant
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inventory located inside the warehouse, with the unique generated tag. And this helps in
the management of inventory.
Super sea foods focus on JIT (Just In Time) approach which states the you only process
when the order is being placed, so that they can efficiently allocate the inventory
resources at their warehouses. Which stops super sea foods to over stock the inventory at
their warehouses.
Super sea foods use the FIFO (First in first out) model, so that the inventory flow
becomes smooth, and customers get what they want on the expected time. FIFO (First in
first out) model helps in preventing the keeping of inventory for the longer period.
Recommendations
After the evaluations of the super sea foods, our group has come to the conclusions that there
are certain things which super sea foods are ignoring. And all of the points which are being
discussed below can help them in pointing out the loop holes and getting the best out of
nothing by using these approaches;
■ Super sea foods should start focusing on Red Meat alongside the sea food and as well as
the efficient allocation and networking can help super sea food in increasing the revenue
from the Meat section as well.
■ Super Sea Food is completely neglecting the Red Meat section; they can also distribute
their meat within Pakistan as well to reap the profits. Just because of having a lot
competitor’s super sea foods feels reluctant in expanding the red meat network. While,
super sea foods can easily reap the benefits by selling it to the local markets.
■ They should enhance their “safety stocks” as well as should do supplier development to
further minimize the cost of purchasing. They can store it for the larger period so
whenever the cost goes up they can cash their holding cost as well as they can also reap a
lot of profits.
■ Super sea foods should not treat all the SKUs as the same. Every SKU is different, and
should be treated differently, because every SKU is associated with its profitability cost.
And needs the different kind of treatment.
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■ Safety stock level should be increased by implanting the efficient calculation methods.
Safely stock levels can be chased afterwards too.
