Suppose you are the accounting manager of a medium-sized supermarket group. The

Question

Suppose you are the accounting manager of a medium-sized supermarket group. The supermarkets in the group used point-of-sale cash registers. The cash registers automatically summarize sales of all items sold in the store, hi the last management meeting, one of the store managers reported that his store had a significant drop in last quarter's revenue. He said that he had difficulties in keeping adequate inventories for popular items on the shelves. After the meeting, the managing director of the group approached you for searching a way to monitor inventories and place daily orders for goods, as needed. Propose two solutions (one manual and one automatic) for the design of a system that account for and controls inventory for the supermarket group. Explain your solutions in detail. Suppose the managing director would like to implement your automatic solution and he wants to redevelop the inventory system by the IT department. Recommend three important controls that the IT department should take to prevent this system development work from failure.

Explanation / Answer

TWO SYSTEMS FOR INVENTORY CONTROL BEST FIT FOR SUPERMARKET :
ABC Analysis

With ABC Analysis, you divide products into three categories to make it easier to reorder them and figure out how many you need to keep on your shelves. These categories include one for small, cheap parts and products; one for somewhat larger and more costly products; and one for very large, expensive products.

Companies that sell products in a wide variety of categories and sizes should probably use this inventory control method. These include supermarkets, office supply stores, home improvement warehouses, wholesalers and more. Some of these companies have a hard time organizing such a vast array of products. ABC Analysis simplifies this process by letting you know how much leeway to give yourself for reordering certain products based on how much they cost and how difficult it is to ship and store them.
A- Category products will be the maximum grocers in sales and flagship products with higher margin. Usually top 20% of the products in the assortment contributing to 80% of the total sales are classified under A category where tight control on inventory is required to ensure no loss in sales. 20% of products contributing to 80% of sales is known as 80-20 Rule or Pareto principle
C-Category products are bottom of the line contributing less to sales. These items are marginally important for the business and are kept only for the sole purpose of customer requirement.
B-Category products are important to the retailer but are less important compared to A Category products.

Minimum-Maximum System

This is probably the simplest way to manage your inventory. Basically, you set a maximum amount and a minimum amount of inventory to keep on hand. When the inventory level reaches its minimum, you order more, though you’re careful not to exceed the maximum amount.

This system works well for many types of companies. If you’re a retailer and you sell a lot of inexpensive products, you can use the Minimum-Maximum System just as well as a manufacturer who uses a lot of small parts to build their end products. It’s also a good fit for businesses with a lot of perishable items, like food and medicine, and they want to cycle through them as quickly as possible.

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