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1 | P a g e UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LU THI TAM HIEN INEFFICIENCY INVENTORY MANAGEMENT CASE OF EXCESS INVENTORY OF THM COMPANY ID 22130022 MASTER OF BU[.]
UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business LU THI TAM HIEN INEFFICIENCY INVENTORY MANAGEMENT: CASE OF EXCESS INVENTORY OF THM COMPANY ID: 22130022 MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR PHAM PHU QUOC Ho Chi Minh City – March 2016 1|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ACKNOWLEDGEMENT This thesis becomes a reality with the kind support and help of many individuals I would like to extend my truthful thanks to all of them First of all , I would like to express my gratitude and sincere thanks to my advisor, PhD Pham Phu Quoc for hid guidance, imparting his knowledge and expertise my study Special thanks to members of THM Company for cooperating, supporting and providing necessary information regarding this thesis Besides, the contribution of my group mates who have cooperated with me to complete this thesis and classmates who have willingly helped me out with their abilities, play an important role for my thesis finishing More interest, I would like to give my warmest thanks to my family who always support and encourage me in completion of this thesis 2|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ABSTRACT In every industry, every enterprise or business, operating and managing their organization are very important The company will grow and make profit if they utilities their working capital including the inventory, debtors, loans and Advances, Gross working Cycle, Creditor and Net working Cycle Therefore, inventory, account receivable, account payable, cash management are the factors that impacts on the profitability The object of the research find the problems of working capital management of THM including the inventory management, account receivable management, account receivable, cash flow management In segment of inventory management, the study also makes clear the factors that impacts on the inventory management including product samples and design, product feature differentiation, specific software request, objective of inventory, failure customer service, using too much working capital in inventory and low of control the market demand Beside the external factors such as market trends, customer‟s demand, competitive impact on the high inventory in the company directly It is important to find the best solutions of excess inventory and effective inventory management Exploring of methods of reducing the current inventory and enhance the Inventory Turnover (ITO), the best ratio to measure the inventory management Additionally, it is necessary to find the properly inventory management models to apply for the company 3|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com TABLE OF CONTENT ACKNOWLEDGEMENT ABSTRACT INTRODUCTION PROBLEM IDENTIFICATION- CASE OF THM COMPANY 10 2.1 Company profile 10 2.2 Perceived Problems from Financial Statement context 13 2.3 The first tentative problems- Inventory record inaccuracies 19 2.4 The second tentative problems- Product samples and differentiation, failure customer service……………………………………………………………………………………… 20 2.5 The third tentative problems- The obsolescence 22 2.6 The four tentative problem- The inadequate planning and execution system 24 2.7 The fifth tentative problem- Low Expectations and forecasting 25 2.8 The sixth tentative problems- External factors economic growth, competitive 27 2.9 Cause- effect tree of real problems- Low Expectations and forecasting 30 POSSIBLE SOLUTIONS DESIGN 32 4|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com 3.1 Alternation 1- Using the proper Forecasting Methods 32 3.2 Alternative 2-Forecast as Close to the Customer as Possible- 34 3.3 Alternative 3-Communicate, Share, and Use the Data to Drive Your Sales and Operations Planning Process- 36 3.4 Alternative -Consider Inventory planning , controlling inventory more efficiency Long- term Strategies 37 IMPLEMENTATION 39 CONCLUSION 46 SUPPORTING INFORMATION 47 6.1 Methodology of collecting data- 47 6.2 The consequences of excess inventory 47 6.3 Forecasting demand models 51 6.4 Inventory Management models 54 6.5 Model for suitable purchasing 59 6.6 Transcript 62 REFERENCES 73 APPENDIX 79 5|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com List of Chart Chart Sales revenues of THMC from 2011- 2014 Chart THMC‟S of sales and service Chart ROA and ROE ratios of THMC from 2010-2014 Lists of Tables Table ROA Ratios Table 2: ROE ratios Table 3: Inventory Turnover Table 4: Day Sales of Inventory Table Target of Increase ITO Table 6: Estimate the reducing in average inventory Table 7: Planning the Action Plan of THM Table 8: ABC Analysis of Items in Stock of THM Table : Safety and Stock Level Table 10 : Estimate the Safety Stock and Order Quantity of A- items List of figures Figure 1: The THM Organization Chart 6|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com Figure : The cause-effect trees exploring from the analysis: Figure 3: PDCA Model Figure 4: Inventory management and Asset protection ( IMAP) 7|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com INTRODUCTION This study found the reasons of decline of revenues and profitability over the years 2011- 2014 The decrease of Return on Asset ( ROA) and Return on Equity ( ROE) exhibited many tentative problems of the THM company The declines of sales, increase of holding costs effect to the low of revenues and low of profitability The costs from increasing of COGS, renting more warehouses, labors, cash investment in payments, short-term loans, or called working Capital Management impact on the company performances The primary findings of measurement of Inventory Turnover Ratios (ITO) , Days sales of Inventory (DSI) and internal, external factors that impact on Inventory Management of the company The ineffective Inventory Management of THM‟s presented through the low of ITO and declines over the years In addition, factors of internal like Capital management of THM the product sample and design, product feature differentiation, specific software request, objective of working management play an important role in effective of Inventory Management of the company The too much slow moving or obsolete inventory, customer service failures and back orders due to lack of the correct inventory, product type, inventory size, are listed as reasons for inefficiency inventory management The changes in product design, excessive purchasing and forecasting errors are reasons for overstocking Among, forecasting errors, mismatching the demand- supply, or un-predicting customer‟s demand are substantial factors to excess inventory 8|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com External environment factors like economic growth, market demands, competitive, customer behavior, recession periods contribute to the management of inventory Theories of inventory management will prove for those variables The analysis will analyze the most influenced factors to high or excess inventories, correlation between the variables Finally, base on the analysis, we found the possible solution to solve the excess inventory and manage the inventory effectively The improvement of ITO should be done by most of the Directors by reducing the average inventory and reducing the number of merchandises Applying the accurate forecasting method, qualitative or quantitative methods likes Times Series, Exponential Smoothing (ES), liner regression will make the company reduce the unexpectation inventory ( R Lindeke , 2006) To a SMEs, as THM, applying the suitable inventory management, PDCA inventory management methods, which categories the inventory by ABC analysis, calculating the EOQ, Alternative Order Quantity Approach (Mathur, Kamlesh, et al., 1996, 697; Morales, Sierra, Lopez 2015) which used for SMEs, and setting target depending on the Manager‟ Experiences Alternative Order Quantity Approach, establish purchasing review criteria to the inventory characteristics, collaboration with vendors to improve the purchasing practice 9|Page LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com PROBLEMS IDENTIFICATION -CASE OF THM COMPANY 2.1 Company profile 2.1.2 Overview of THM Name : THE HE MOI TRADING AND CONSTRUCTION LTD., CO TAX CODE: 0302696827 ADDRESS: 299, TAN KY TAN QUY STREET, TAN SON NHI WARD, TAN PHU DISTRICT, HO CHI MINH CITY TEL: 08.35367276 FAX: 08.38472838 Since 1996, THM is a shop, which sold construction materials like stone, steel, paints, civil tools…Since then THM have been developing, creating many good relationships with other constructions; materials agencies Moreover, the company have been catching the market conditions, customer behaviors Therefore, the THE HE MOI TRADING AND CONSTRUCTION LTD., CO has been established, specialized in paintings and painting tools Until now, the company has created the prestige and determined the its strong in the market Amount of orders has substantial increased, and expanded the market segment whole the country 10 | P a g e LUAN VAN CHAT LUONG download : add luanvanchat@agmail.com ... solutions of excess inventory and effective inventory management Exploring of methods of reducing the current inventory and enhance the Inventory Turnover (ITO), the best ratio to measure the inventory. .. findings of measurement of Inventory Turnover Ratios (ITO) , Days sales of Inventory (DSI) and internal, external factors that impact on Inventory Management of the company The ineffective Inventory. .. luanvanchat@agmail.com List of Chart Chart Sales revenues of THMC from 2011- 2014 Chart THMC‟S of sales and service Chart ROA and ROE ratios of THMC from 2010-2014 Lists of Tables Table ROA Ratios