Tuesday, February 26, 2008

Problem Statement

Here is a challenge.

come up a solution to Implement planning system at and Indian Grocery store..

Some clues..

1. Do we need MRP or Inventory Planning system ?

2. Do we need Standard or Config ITems?

3. Do we need work in process?

Happy researching.. :)


Shashi Rai said...

Indian Grocery Store should have a Inventory planning system as we can't do long term forecasting of consumable and perishable items.

The way planning system can be set as is , it should be based on re-order point planning with vendor managed inventory.

which means that inventory will be replenished as soon as its over in the bin.

lets think furthur.

Shashi Rai said...

so lets take example of tomatoes being sold at the store.. how much is optimum quantity being maintained in the bin from which customers pick and how much should be available in storage so that we are never out of stock..

idea will be to maximize profit

Profit = Price Sold - Cost

if we keep the price as constant then only way to increase profit is by reducing cost.

Cost will have following component
= Cost of tomatoes + cost of renting warehouse + cost of wastage if not sold + Cost of stock out + cost of shelf space in the shop itself

if i take the cost of tomatoes as constant then Cost is function of

F(x) = Cost of Warehouse + Cost of stock out (Opportunity Cost ) + Cost of Wastage

Opportunity Cost and Cost of wastage will be inversaly proportional i .e if i have less stock then wastage cost will be low but opporunity cost will be high and vise versa

Wastage cost = K(constant ) /Stock out cost

So F(X) =Cost of Warehouse + Stock Out Cost + k(constant)/Stock Out Cost

Seems like a non linear equation..

If i differentiate above wrt to Stock out i.e
d(Fx)/d(stock Out Cost )=
1 -k/(stock out cost )^2

if i solve for above then

the value of stock out at which the cost will be minumim will be

stock out cost (min ) =(1/k)^1/2

where K is a constant which came from deriving for inversaly proportional equation between cost of wastage and cost of opportunity lost..

Chandan Tiwary said...

Agree - it shd be based on Inv Planning System and ROP concept.

One very important factor can be the high volume of sell during the weekends. I will not be surprised if its 80% in these two days. So you need to make sure that you have everything fresh and sufficient stock for the weekend. You can't afford stock out in weekends.

Shashi Rai said...

The weekend profile will be very much of overall demand patern, so will be included in the safety stock.