OB SO LE TE IN VEN TO RY MA NA GE MENT. CA SE STU DY Zarządzanie zapasami produktów przestarzałych. Studium przypadku

Se ba stian Ja rzę bow ski 1, Na ta lia Ma ja Bez a t 2 War saw Uni ver si ty of Li fe Scien ces (Szko ła Głów na Go spo dar stwa Wiej skie go) OB SO LE TE IN VEN TO RY MA NA GE MENT. CA SE STU DY Zarządzanie zapasami produktów przestarzałych. Studium przypadku Introduction For an or ga ni za tion which is sup ply ing go ods to its cu sto - mers, the ma jor ac ti vi ty is to ha ve su ita ble pro ducts ava ila ble at an ac cep ta ble pri ce wi thin a re aso na ble ti me sca le 3. In ven - to ry de ci sions are high risk and high im pact for sup ply cha in ma na ge ment. Wi tho ut a pro per in ven to ry as sort ment lost sa - les and cu sto mer dis sa tis fac tion may oc cur. Just as shor ta ges can di srupt plan ned mar ke ting and ma nu fac tu ring ope ra tions, in ven to ry over stocks al so cre ate ope ra ting pro blems. Over stocks in cre ase cost and re du ce pro fi ta bi li ty as a re sult of ad di tio nal wa re ho using, wor king ca pi tal, in su ran ce, ta xes, and ob so le - scen ce 4. Fig. 1. Stan dard pro duct li fe cyc le cu rve. So ur ce: Ru sh ton et al. 2010. One of the aspects of in ven to ry ma na ge ment is ob so le te stock cle aning. Ac cor ding to A. Anil Ku mar and N. Nu resh ob so le te items are tho se ma te rials and equ ip ments which are not da - ma ged and which ha ve eco no mic worth but which are no lon - ger use ful for the com pa ny s ope ra tio n 5. Other de fi ni tion of the phe no me na is: com po nents that can not be sold on the mar - ket any lon ger be cau se a bet ter suc ces sor has be en in tro du - ced to the mar ket for the sa me pri ce 6. In or der to bet ter un der stand the ob so le scen ce phe no me - na the pro duct li fe cyc le con cept (PLC) ne eds to be in tro du - ced. The prin ci ple be hind the PLC is con nec ted with the sta - ged de ve lop ment of a pro duct. This starts with the in tro duc - tion of the pro duct in to the mar ket and fol lows (for suc cess ful pro ducts) with the ste ady growth of the pro duct as it be co - mes es ta bli shed. The li fe cyc le con ti nu es with the ac ce le ra ted growth of the pro duct as com pe ti tors in tro du ce si mi lar pro - ducts, which sti mu la te to tal de mand, and ends as the de mand for the pro duct runs in to dec li ne 7. The PLC con cept is il lu stra - ted in Fi gu re 1. The re asons for ge ne ra tion and ac cu mu la tion of ob so le te items are among others the fol lo wing ones: chan ges in pro duct de sign: This may le ad to so me items get - ting in va lid so far as the fi nal pro ducts is con cer ned. Hen ce, the en ti re stock of such items be co mes sur plus ob so le te faul ty plan ning and fo re ca sting: the mar ke ting de part ment may ha ve pro jec ted a sa les fo re cast which mi ght be on the fal se. Any ma te rial plan ning has to be ba sed on sa les fo re - ca sts and this co uld re sult in sur plus items faul ty pur cha se prac ti ces: sub -opti mi zing de ci sions li ke buy - ing in bulk to ta ke ca re of di sco unts and trans por ta tion eco - no my wi tho ut ta king in to ac co unt fac tors such as, shelf li - fe, sto ra ge spa ce re qu ire ments and tech no lo gi cal chan ges on ce aga in le ad to the ac cu mu la tion of sur plus and ob so le - te stock s 8. All the se are com mon phe no me na in so me bu si nesses. They all cau se self -in flic ted ob so le te stocks and can be avo ided by im pro ving com mu ni ca tion be twe en de part ments. The re spon - si bi li ty for or ga ni zing this com mu ni ca tion re vo lu tion lies with stock con tro l 9. So me or ga ni za tions ha ve in tro du ced for mal do cu men ta tion in in tro du cing chan ges in de sign or pro duct. It is cal led the Ef - fec ti ve Po int Ad vi ce. This is po pu lar ly known as EPA. He re, the pro po sed chan ges, de ta ils of new ma te rials and pro ducts re - qu ired, de ta ils of ma te rials and the pro ducts which will be in - va lid/ob so le te when the chan ge oc curs and the ap pro xi ma te da te when the chan ge is expec ted to be in tro du ced are de ta - iled and cir cu la ted to con cer ned de part ment s 10. 1 War saw Uni ver si ty of Li fe Scien ces, Fa cul ty of Eco no mics. Artykuł recenzowany (przyp. red.). 2 War saw Uni ver si ty of Li fe Scien ces, Fa cul ty of Eco no mics. 3 Wild, T., Best practice in inventory management, John Wi ley & Sons, Inc. 1997, pp 4. 4 Bo wer sox, D. J., Closs, D. J., Bi xby Co oper, M., Supply Chain Logistics Management, McGraw -Hill Hi gher Edu ca tion 2002, pp 282-283. 5 Ku mar, S. A., Su resh, N., Production and operations management, 2nd Edi tion, pp 227. 6 Stad tler, H., Kil ger, C., Supply chain management and advanced planning; Concepts, models, software and case studies, 4th Edi tion, Sprin ger 2007, pp 303. 7 Ru sh ton, A., Cro ucher, P., Ba ker, P., The handbook of logistics & distribution management, 4th Edi tion, Ko gan Pa ge 2010, pp 93. 8 Ku mar, S. A., Su resh, N.: Production and operations management, 2 nd Edi tion, pp 227-228. 9 Rut kow ski, K.: Logistyka dystrybucji. Specyfika. Tendencje rozwojowe. Dobre praktyki, Szko ła Głów na Han dlo wa, War sza wa 2005, pp 103. 10 Ku mar, S. A., Su resh, N., Production and operations management, 2 nd Edi tion, pp 228-229. 5

Ne ver the less, one ne eds to re ali ze that so me steps sho uld be ta ken not on ly be fo re iden ti fy ing the ob so le te pro ducts, but al so ex an te. Va rio us ap pro aches to di spo sing ob so le te stock exist such as: sell at net pri ce, tem po ra ri ly ra ise com - mis sions for sa le spe ople, di sco unt the pri ce, re turn to ven dor, do na te, wri te it off or auc tion s 11. Of co ur se, the cho ice of the so lu tion de pends on a sec tor on which a com pa ny ope ra tes, ran ge of pro ducts, com pa ny s po li cy, po si tion in the sup ply cha in, re la tion ships with tra ding part ners, the mar ket spe ci - fic and so on 12. The abo ve de scri bed pro ble ma tic con cerns on ly a small part of in ven to ry ma na ge ment. The re is al most no de ta iled so lu - tions (ca se stu dies) in the li te ra tu re that wo uld han dle the ob - so le te stock ma na ge ment. This fact was one of the in cen ti ves to wri te the pa per. The other one was con nec ted with the re - al ne ed to bu ild and im ple ment an ob so le te stock cle aning pro - Fol lo wing the abo ve men tio ned de fi ni tion, first the ca se ne - eds to be de scri bed. It is as su med that so far, the com pa ny had no pro ce du re co ping with ob so le te pro ducts. The ca te go ry ma - na gers and sa les ma na gers on ce a month got in for ma tion that so me pro ducts will be so on re pla ced by new ones, so that the ob so le te ones ne eded to be sold out in or der not to ta ke spa - ce in wa re ho uses and not to ge ne ra te lo oses. If so me SKU s 14 we re not sold they pi led up in wa re ho uses and wa ited for the an nu al sa les for the em ploy ees. Of co ur se, this way of han dling the ob so le te in ven to ry had ma ny draw backs as: no da ta ba se with ob so le te SKUs, which wo uld be upda ted e. g. on mon th ly ba sis no con trol ling sys tem of the ob so le te SKUs de te rio ra tion of re la tions with Tra ding Part ners co sts con nec ted with fi nan cial as sets, va lor and mar gin loss Fig. 2. Pro duct Li fe Cyc le in the com pa ny. So ur ce: Own work. ce du re in a com pa ny of the glo bal ho me ap plian ce in du stry. In the sec tion 2, the ca se stu dy of the ana ly zed com pa ny will be pre sen ted. Me tho do lo gy and expec ted re sults will be de - scri bed wi thin this sec tion as well. Case study The re is a va lue in ob so le te in ven to ry items, but if the se items pi le up and sit over a pe riod of ti me, they be co me wor th less. That is why, the re is a ne ed to pro po se a spe ci fic, de ta iled pro - ce du re co ping with ob so le te pro ducts ma na ge ment in or der to mi ni mi ze lo oses con nec ted with the phe no me na. The ca - se stu dy con cerns an ob so le te stock cle aning pro ce du re that co uld be in tro du ced to an exem pla ry com pa ny. Ca se stu dy is an ana ly sis of a sin gle ca se, na me ly a de ta iled de scrip tion, usu al ly a re al ca se, which al lows dra wing conc lu - sions abo ut the cau ses and re sult of its co ur se and the bro - ader bu si ness mo del, mar ket cha rac te ri stics, tech ni cal con si - de ra tions etc. The pur po se of the ca se stu dy is to de mon stra te the con cept worth co py ing, as well as po ten tial er rors to be avo ide d 13. (pro ducts are less and less in li ne with mar ket expec ta tions), sto ra ge (sur fa ces uti li za tion). That is why, the re was a ne ed to de fi ne an ob so le te pro - duct and cre ate da ta ba se that will ena ble fol lo wing the chan - ges in pro ducts li fe cyc le and the ir stock -on -hand vo lu me in or der to sell ob so le te SKUs at the ir ear ly sta ge of ob so le scen - ce. The com pa ny s pro duct li fe cyc le is pre sen ted be low (Fi - gu re 2). The sta tus num bers are used in the com pa ny by the em ploy - ees. Sta tus A me ans the in tro duc tion sta ge of a pro duct. The - re are ramp -up de li ve ries from plants and no sa les. Sta tus B con si sts of growth and ma tu ri ty sta ge. Pro ducts are sold and sup plies va ry in vo lu me de pen ding on the pro duct fa mi ly and the pro duct alo ne. Sta tus C be gins when the mar ket is sa tu - ra ted and sa les be gin to dec li ne, the pro duct be co mes tech - no lo gi cal ly ob so le te or cu sto mers in te rest falls down. Pro ducts that are at the ob so le te sta ge are no lon ger ma nu fac tu red. Ho - we ver the plants may ha ve star ted to ma nu fac tu re so me lots, so they ha ve to be fi ni shed and de li ve red to the wa re ho uses. That is why ob so le te pro ducts pi le up even mo re. 11 Mul ler, M., Essentials of Inventory Management, Ama com 2003, pp 38. 12 Sar jusz -Wol ski, Z., Sterowanie zapasami w przedsiębiorstwie, Pol skie Wy daw nic two Eko no micz ne 2000, pp 122. 13 Frąc kie wicz, E., Kar wow ski, J., Kar wow ski, M., Ru daw ska, E., Zarządzanie marketingowe, Pol skie Wy daw nic two Eko no micz ne 2007, pp 26. 14 SKU stands for Stock Ke eping Unit, in the pa per the term pro duct is used in ter chan ge ably. 6

Fig. 3. Sta ges of sta tus 3. So ur ce: Own work. The sta tus C is the pe riod of our in te rest, that ne eds to be in ve sti ga ted and the re sho uld be so me pro ce du re pro po sed that will im pro ve ob so le te in ven to ry ma na ge ment. The me tho - do lo gy of the un der ta ken ac tions is pre sen ted in the next part of this sec tion. The sta tus C of the pro duct li fe cyc le ne eds to be ana ly zed. The pro po sed sta ges of sta tus C are pre sen ted in Fi gu re 4. Each of the sta ges, na me ly C -0, C -1, C -2 and C -3, la sts 1 month. The sta ges and un der ta ken ac tions are de scri bed be low: Sta ge C -0: The first sta ge is an in for ma ti ve pe riod. The pro - ducts sta tu es are upda ted at the be gin ning of eve ry month. Pro duct ma na gers ha ve one month to pre pa re pro - po sals for the next sta ge 3-A. The se options are de scri bed in the sta ge 3-A Sta ge C -1.1: Du ring this pe riod sa les ma na gers try to sell as much as they are able to, using three be low options: C -1.1 tra de pro mo tions: sa les kits in c lu ding an ob so le - te pro duct and re gu lar pro ducts with high tur no ver or sa - les kits in c lu ding few ob so le te pro ducts (100% of the in - i tial ASV 15 ); C -1.2 sup por ting re gu lar or ders with ob so le te SKUs for free (0% of the in i tial ASV) C -1.3 in ter net sa les the com pa ny s own pa ge and its tra ding part ners (80% of the in i tial ASV) Hi gher than ty pi cal pro vi sions are the in cen ti ves for them to mo ve that in ven to ry. Sta ge C -2: Pro mo tions to em ploy ees and fac to ry em ploy ees. Ob so le te pro ducts are of fe red at bar ga in pri ces. The re are no li mits in num ber of bo ught pro ducts. (50% of the in i tial ASV) Sta ge C -3: scrap ping of the re ma ining ob so le te SKUs (0% of the in i tial ASV). All of the com pu ta tions we re con duc ted on the ba sis of the ar ti fi cial ly ge ne ra ted da ta con cer ning: stock -on -hand vo lu mes ASV Ave ra ge sa les va lu es pro duct s sta tu ses. On ly SKUs with sta tus C we re ta ken in to con si de ra tion, so that the sha re of the ca pi tal co ve red by the se SKUs is vi si ble. In or der to con duct si mu la tion so me as sump tions we re ma - de and sce na rios we re cho sen. The si mu la tions we re con duc - ted in or der to ob ta in the most pro ba ble to tal ave ra ge sa les va lue. The de scrip tion of si mu la tions and the ir re sults we re pre sen ted in the part 3. Results The re we re 10 000 si mu la tions car ried out in or der to ob - ta in the most pro ba ble to tal re ve nue and co sts of unsold items. In or der to con duct si mu la tions and see the re sults, the fol - lo wing as sump tions we re ma de: the com pa ny ma nu fac tu res and sells 350 pro ducts; 10% of them ha ve sta tus C, so the se pro ducts are ob so le te items (35 SKUs) the ASV of the se ob so le te pro ducts va ries from 300 PLN to 4 000 PLN stock -on -hand vo lu me at a gi ven da te va ries from 1 to 50 SKUs unsold pro ducts ge ne ra te no va lue for the com pa ny and they are scra ped in or der to mi ni mi ze the ir wa re ho using cost. 15 ASV stands for Ave ra ge Sa les Va lue. 7

Tab. 1. Vo lu me sha re of ob so le te pro ducts at each sta ge in 3 sce na rios. So ur ce: Own work. Fig. 4. Sha re of to tal re ve nue and cost of unsold items in the po ten tial to tal ca pi tal in the sce - na rios. So ur ce: Own work. The next step was to pre sent the re - sults in three sce na rios which dif fer in terms of vo lu me sha re of ob so le te SKUs at each sta ge C -1, C -2 and C -3. In the first sce na rio it was as su med that 33% of ob - so le te SKUs we re sold at the sta ge C -1, next 33% at the sta ge C -2, and the last 33% we re scrap ped at the sta ge C - -3. In the se cond sce na rio all SKUs are sold at sta ge C -1. In the third sce na rio, it was as su med that a half of SKUs was sold in the sta ge C -1, 25% at the sta ge C - -2 and the last 25% we re scrap ped at the sta ge 3-C. The vo lu me sha res at sta ges C - -1.1, C -1.2 and C -1.3 are equ al ly li ke ly (33%). Wi thin the fra me work of sce na - rios, the sta ge C -0 is not ta ken in to con - si de ra tion due to the fact that pro ducts are not be ing sold in this pe riod, Tab. 2. Re sults of the sce na rios car ried out on the ba sis of si mu la tions. So ur ce: Own work. 8

they wa it in wa re ho uses it is on ly an in for ma ti ve pe riod for the em ploy ees. On the ba sis of 10 000 si mu la tions car ried out in Mi cro soft Of fi ce Excel 2010, it is po ssi ble to com pu te exac tly, how much the com pa ny can yield on ob so le te in ven to ry at each sta ge and what the cost of unsold items is. The es ti ma tions are that the who le ca pi tal co ve red by ob so le te pro ducts (stock -on -hand vo lu me equ als to 854 items) amo unts to 1 426 485 PLN. It is pre sen ted in the Ta ble 2, that sce na rio 2 (100% at the sta ge C -1) is the most ren ta ble one and the re ve nue amo unts to 855 035 PLN will be re tur ned to the com pa ny and the re will be no cost of unsold items. The to tal ca pi tal co ve red by the sold ob so le te SKUs in the three sce na rios and the cost of unsold SKUs as a sha re of to - tal po ten tial ca pi tal is sho wed in the Fi gu re 4. The to tal po - ten tial ca pi tal is the va lue expres sing the si tu ation if all the ob - so le te pro ducts are sold. If all sta ges are li ke ly pro ba ble the ca pi tal which will be ga ined by the com pa ny in sce na rio 1 amo - unts to on ly 36% (al most 520 000 PLN) and cost to 33% of the po ten tial ca pi tal (over 475 000 PLN). Wi thin sce na rio 3 re ve - nue equ als to 42% (over 600 000 PLN) and cost to 25% of the po ten tial ca pi tal (over 356 000 PLN). Of co ur se the best sce na rio wo uld be if all pro ducts we re sold at the sta ge C -1.2, for the full pri ce. It de pends on ca - te go ry ma na gers that pre pa re tra de pro po sals. The worst sce - na rio sho uld be if the re we re no sa les and the who le ob so - le te in ven to ry ran ge was scrap ped. Then the com pa ny ob ta ins no re ve nue. Unfor tu na te ly, it is ve ry hard to fo re cast how the de mand will be ha ve un der the as sump tions ma de (di sco unts). mo tions wo uld be ma de in or der to ma xi mi ze the sa les vo lu - me of ob so le te SKUs, and thus mi ni mi ze the ir cost of wa re - ho using. Abstract In the pa per, the ca se stu dy of ob so le te in ven to ry ma na ge - ment is un der con si de ra tion. Fir stly, so me back gro und in for - ma tion on in ven to ry ma na ge ment and ob so le scen ce phe no - me na is pre sen ted. Fur ther con si de ra tions in c lu de de mon stra tion of the ca se stu dy, the me tho do lo gy of cre ating the ob so le te stock cle aning pro ce du re and the re sults. All the com pu ta tions we re con duc ted with usa ge of ar ti fi cial ly ge ne - ra ted da ta. Key words: ob so le te in ven to ry ma na ge ment, stock cle - aning, pro duct li fe cyc le (PLC) Streszczenie Ni niej sze opra co wa nie do ty czy za rzą dza nia za pa sa mi pro - duk tów prze sta rza łych ( ob so le to wy mi ). W pierw szej czę ści przed sta wio no pod sta wo we in for ma cje o za rzą dza niu za pa - sa mi oraz o zja wi sku sta rze nia się pro duk tów. Dal sze roz wa - ża nia obej mu ją stu dium przy pad ku, me to do lo gię two rze nia pro ce du ry czysz cze nia za pa sów oraz wy ni ki. Wszyst kie ob li - cze nia zo sta ły prze pro wa dzo ne z wy ko rzy sta niem sztucz nie wy ge ne ro wa nych da nych Sło wa klu czo we: za rzą dza nie za pa sa mi, czysz cze nie za pa - sów, cykl ży cia pro duk tu (PLC) Conclusions The aim of this pa per was to pro po se an ob so le te stock cle - aning pro ce du re. Thanks to the con duc ted si mu la tion, one can see that the com pa ny can earn on the ob so le te in ven to ry. The ana ly zed ca se stu dy and its re sults pro ved that go od in - ven to ry ma na ge ment and its con trol can ge ne ra te mo ney to the com pa ny. All this hi gh li ghts that a clo se co or di na tion is re qu ired in or - der to avo id stock pi ling ob so le te and sur plus items. The stock car to gra phy and its de ta iled ele ments sho uld be in c lu ded in the com pa ny KPIs and mon th ly fol lo wed -up by the Bo ard of Di rec tors. The na tu ral con ti nu ation of the pro po sed pro ce du re wo uld be an im ple men ta tion to the re al bu si ness ca se. A gre at po - ssi bi li ty to check if the pro ce du re brings ad van ta ges on the long run, wo uld be con trol ling after e. g. half a year. What is mo - re, ex an te ana ly sis of da ta con cer ning de mand and at each sta - ge co uld be car ried out. Then the ca te go ry ma na gers and sa - les pe ople wo uld ha ve bac kward in for ma tion and so me ad ju st ments wi thin the fra me work of pro po sed pri ces and pro - RE FE REN CES 1. Bo wer sox, D. J., Closs, D. J., Bi xby Co oper, M. (2002), Supply Chain Logistics Management, McGraw -Hill Hi gher Edu ca tion. 2. Frąc kie wicz, E., Kar wow ski, J., Kar wow ski, M., Ru daw ska, E. (2007), Zarządzanie marketingowe, Pol skie Wy daw nic two Eko no micz ne. 3. Ku mar, S. A., Su resh, N. (2008), Production and operations management, 2nd Edi tion. 4. Mul ler, M. (2000), Essentials of Inventory Management, Ama com 2003Sar - jusz -Wol ski, Z., Sterowanie zapasami w przedsiębiorstwie, Pol skie Wy - daw nic two Eko no micz ne. 5. Ru sh ton, A., Cro ucher, P., Ba ker, P. (2010), The handbook of logistics & distribution management, 4th Edi tion, Ko gan Pa ge. 6. Rut kow ski, K. (2005), Logistyka dystrybucji. Specyfika. Tendencje rozwojowe. Dobre praktyki, Szko ła Głów na Han dlo wa, War sza wa. 7. Sar jusz -Wol ski, Z. (2000), Sterowanie zapasami w przedsiębiorstwie, Pol - skie Wy daw nic two Eko no micz ne. 8. Stad tler, H., Kil ger, C. (2007), Supply chain management and advanced planning; Concepts, models, software and case studies, 4th Edi tion, Sprin - ger. 9. Wild, T. (1997), Best practice in inventory management, John Wi ley & Sons, Inc. 9