papeteries de mauduit philippines, incorporated san pedro, laguna

PAMANTASAN NG LUNGSOD NG MUNTINLUPA

NBP Reservation Poblacion, Muntinlupa City COLLEGE OF BUSINESS ADMINISTRATION

INVENTORY INVENTORY MANAGEMENTMANAGEMENT

OFOFPDM PDM ((PPAPETERIES APETERIES DDE E MMAUDUIT)AUDUIT)

PHILIPPINES, INCORPORATEDPHILIPPINES, INCORPORATEDSAN PEDRO, LAGUNASAN PEDRO, LAGUNA

In Partial Fulfillment of the Requirements in Inventory Management and Control Leading to the Degree of Bachelor of Science in Business

Administration Major in Management

Presented by:

Jynlastee E. CalvarioCasey Jane G. ChozasMyril Mae M. Magdael

Diana Rose D. Panganiban

Presented to:

Dr. Willfred A. Tacsuan

1 PAMANTASAN NG LUNGSOD NG MUNTINLUPA


T A B L E O F C O N T E N T S

I. Title page

II. Acknowledgement

III. Anecdote

IV. Quality Policies

Vision

Mission

Company culture

Company Values

V. History

VI. Discussion

VII. Documents

Important papers

Pictures

2



A C K N O W L E D G E M E N T

This documentation would not be possible without the help; trust and

support of the individuals who play vital roles in making this a success.

We would like to extend their outmost gratitude and appreciation to the

following special individuals behind this research study:

First and foremost, to researchers’ beloved Parents and Guardians, for

without their Moral and Financial support, this documentation will be

impossible to finish.

To Ms. Gemma N. Rozul, for recommending us to the Management

and giving us the opportunity to conduct an observation to PDM Philippines

Industry, Incorporated.

To the Supply Chain Management Officers who gave their time and

effort by elaborating carefully each topics covered by our Subject Inventory

Management and Control.

To Dr. Willfred A. Tacsuan, for his invaluable assistance, support and

encouragement that truly Inspires us to improve our documentation.



To our friends and classmates who help and gave their support, love

and affection and by sharing knowledge and ideas.

To Manilyn F. Ramento, our fellow students who have been there to

give her support us as well.

And especially to our God, for giving us enough knowledge and ideas

to apply in the documentation and for His guidance and trust that gives

courage and perseverance to the proponents of the study.

♥♥♥

4



A N E C D O T E

August 28, 2009. Friday 10 o’clock in the morning. All the members of the

group waited in front of Jollibee, San Pedro Laguna Branch until 10:30 in the

morning. Then, we went to Kimberly Clark Plant and asked the two (2) Guards

there if we could do some documentation. They told us, “Pasensya na, for closing

na ito kasi nabili na ito ng PDM, kung gusto niyo i-try niyo na lang doon”. We went

to PDM just like where the guard pointed us. PDM is adjacent to Kimberly Clark

which made it easy for us to find it. And after that, we started to walk near in the

Main Entrance of PDM and one of my classmate said that we were going to take

an examination for a job vacancy but that is only a joke because that time we saw

many people who just like taking an examination. Then suddenly one guy came

behind our back and he was one of the employees there and he asked “anong

gagawin nyo dito?” after that we told him that we needed to find an Industrial

Company to conduct an observation. We are so lucky because the guy is so kind

because he was the one who talked to the Human Resource Manager to

acknowledge about the observation we needed to do. Thanks for the joke!!!

On September 2, 2009, 10:30 in the morning we came to PDM for the

second time to give an approval letter so that we can have an authorization for our

documentation.

5



On September 17, 2009, 11:45 in the morning that is our third time to visit

PDM to confirmed if there is a progress in the letter we gave but unfortunately Ms.

April (Clerk) told us that the concerned Officers of the Management of the

company has not yet talked about the approval of our Documentation because that

time they are so busy because someone will visit them from PDM France but Ms.

April also told us that we have nothing to worry because it is already proposed to

the Management and only their approval is all we need.

That time we realized that it is hard to conduct an observation because

some regarding the product they produce and company profile they have. There

are company and find another one because we have spent a lot of our time and

especially our money for nothing but we needed to encourage ourselves to

support one another.

Fourth day of visiting, September 30, 2009. 11:45 in the morning. We are

so happy because Ms. April told us that she would call us for the schedule given

by the Management. After a few days of waiting for the call of Ms. April we decided

to make an action, so we were the ones who called them. Successfully, we have

known the schedule and time when we will have our documentation.

6



October 8, 2009 at 9:10 in the morning. This is what are we waiting

for. Everyone was so excited, and mixed emotions overflowed. The board room

was so cold and it adds chill to us. Managers and Key Personnels’ of Supply chain

Management are now in front of us, Powerpoint Presentations, the feeling of being

in the field of Business, the becoming of being them someday; these are our first

impressions that came up to our minds after meeting. Then, we introduce

ourselves after they have introduced themselves. Mr. Oliver D. Limguangco

(Strategic Procurement Manager) first presented the Company Profile of PDM and

explained everything under the sun. After that, each of us asked Questions for

some clarifications. Mrs. Bernadette O. Villanueva (Customer Service and

Planning Officer) then presented her Powerpoint Presentation for the Planning

Strategies of PDM as well as their sales tactics and the like. The group insert

some questions because the lecture had been the hardest, MRP and MPS are

included with her job. After that, Mr. Edrianne (Purchasing Officer) is the next and

explained to us all about purchasing, its functions and duties. Next is Mr. Roberto

A. Magalino (In-Bound WH Supervisor) who explained about production from the

production area and what is to be delivered. Then lastly, Mr. Felixberto B.

Casuncad (Out-Bound WH Supervisor) explained the products to be delivered to

Clients and make sure it is delivered safely no more, no less.

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PAMANTASAN NG LUNGSOD NGMUNTINLUPA


After their presentation they offered us some snacks and we ended it up with

a good smile and we thanked them because they gave their time and effort to

make sure our Documentation, really well presented.

When the meeting is over they let take out some foods and bring it to School. After

that we go out and we take some pictures for the additional inputs for our

documentation. That is the end of our observation or visitation.

♥♥♥

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COMPANY VISION, MISSION, CULTURE AND VALUES

V I S I O N

To be sustainably profitable business, a responsible Corporate Citizen, the

employer of choice in the Philippines and the Preferred Supplier of Tobacco –

related paper in Southeast Asia.

M I S S I O N

To produce high-quality cost effective tobacco related papers using the right

processes and technology, and to provide efficient customer service.

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C O M P A N Y C U L T U R E

We are a Company that stands for:

Continuous Improvement

Innovativeness and Adaptiveness to change

“Do it” (Doing right things the first time and all the time)

Driving Results

C O R P O R A T E V A L U E S

Customer Focus

Respect for People

Integrity

Teamwork

Excellence

Sense of Ownership

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H I S T O R Y

Schweitzer-Mauduit Philippines Operations

In June 2005, a subsidiary of Schweitzer-Mauduit acquired the tobacco-

related manufacturing assets of KCPI, a Philippines company. The new

company, PDM Philippines Industries, Inc., is the only domestic Philippine

producer of tobacco-related papers and had, at the time of the acquisition,

about a 60 percent share of the Philippine market. The mill contains two

paper machines and related converting equipment to produce cigarette,

conventional plug wrap and tipping papers.

PDM Philippines Industries Inc. is a multinational company which

purchased the paper operations of Kimberly Clark Philippines, Inc. in

November 2004. Our Principal company is Schweitzer-Mauduit, a company

listed in the New York Stock exchange under the tickler name SWM.

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PAMANTASAN NG LUNGSOD NG MUNTINLUPA NBP Reservation Poblacion, Muntinlupa City

COLLEGE OF BUSINESS ADMINISTRATION

Diversified producer of premium specialty papers. World’s largest

supplier of fine papers to the tobacco industry. Conducts business in over 900

countries. Employs approximately 3,600 people worldwide. With the

operations in the United States, France, Brazil, Indonesia, Canada and

Philippines. Became an independent public company on December 1, 1995

with the spin-off by Kimberly-Clark Corporation of its United States, French

and Canadian operations that produced tobacco-related products. Listed on

the New York Stock Exchange under the symbol SWM. The Company’s

domestic mills led the development of the North American tobacco-related

papers manufacturing industry, which was originated by Peter J. Schweitzer,

Inc. that began as an importer of cigarette papers from France in 1908.

Philippines (Acquired 2005) PDM Philippines located in San Pedro, Laguna,

Philippines.

PDM Philippines Industries Inc. (PPI) owns and operates tobacco-based

paper mills. The company’s products include cigarette, conventional plug

wrap, and base and printed tipping papers. PPI was founded in 2004 and is

based in Philippines. PDM Philippines Industries Inc. operates as a subsidiary

of Schweitzer-Mauduit France S.A.R.L.

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Schweitzer-Mauduit International, Inc.

Schweitzer-Mauduit International, Inc. (Schweitzer-Mauduit) is a diversified

producer of premium specialty papers and the world’s largest supplier of fine

papers to the tobacco industry. Schweitzer-Mauduit conducts business in

over 90 countries and employs approximately 3,600 people worldwide, with

operations in the United States, France, Brazil, Indonesia, the Philippines and

Canada and with a joint venture under construction in China.

Schweitzer-Mauduit became an independent public company on December 1,

1995 with the spin-off by Kimberly-Clark Corporation of its United States,

French and Canadian operations that produced tobacco-related products.

Schweitzer-Mauduit is listed on the New York Stock Exchange under the

symbol SWM.

Schweitzer-Mauduit’s manufacturing facilities have a long history of producing

paper dating back to 1545. The Company’s domestic mills led the

development of the North American tobacco-related papers manufacturing

industry, which was originated by Peter J. Schweitzer, Inc. that began as an

importer of cigarette papers from France in 1908. The manufacturing facilities

include:

United States

Newberry Operations, located in Newberry, South Carolina

(Acquired 2007).

PAMANTASAN NG LUNGSOD NG

MUNTINLUPA NBP Reservation Poblacion, Muntinlupa City


Ancram mill located in Ancram, New York

France

Papeteries de Mauduit mill located in Quimperlé, France

Papereries de Malaucène mill located in Malaucène, France

Papeteries de Saint Girons mill located in Saint-Girons, France

(Acquired 1998)

LTR Industries mill located in Spay, France

Brazil (Acquired 1998)

Schweitzer-Mauduit do Brasil mill located in Santenesia Pirai, Brasil

Indonesia (Acquired 2004)

PT PDM Indonesia mill located in Medan, Indonesia

Philippines (Acquired 2005)

PDM Philippines Industries, Inc.

China Paper Joint Venture (Formed 2005)

China Tobacco Mauduit (Jiangmen) Paper Industry Company Ltd.

mill under construction in Jiangmen, China.

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The mill was purchased by Schweitzer-Mauduit in 1940. Two cigarette paper

machines began operation in 1941 and three more cigarette paper machines

were added between 1950 and 1957. A sixth cigarette paper machine was

added in 1961 and was completely rebuilt in 1993 as a “state of the art” high-

speed cigarette paper machine. Today the mill is the sole North American

producer of conventional and lower ignition propensity cigarette papers.

Schweitzer-Mauduit International, Inc. (Schweitzer-Mauduit) is a diversified

producer of premium specialty papers and the world’s largest supplier of fine

papers to the tobacco industry. Schweitzer-Mauduit conducts business in

over 90 countries and employs approximately 3,600 people worldwide, with

operations in the United States, France, Brazil, Indonesia, the Philippines and

Canada and with a joint venture under construction in China.

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Tobacco Industry Products

This category includes fine papers and reconstituted

tobacco products used in the manufacture of cigarettes

and cigars.

Schweitzer-Mauduit International, Inc. is a diversified

producer of premium specialty papers and the world’s

largest supplier of fine papers to the tobacco industry.

Schweitzer-Mauduit’s products fall into two categories – tobacco industry

products and commercial and industrial product.

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Commercial and Industrial Products

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D I S C U S S I O N

Inventory is a list for goods and materials, or those goods and

materials themselves, held available in stock by a business. It is

also used for a list of the contents of a household and for a list for

testamentary purposes of the possessions of someone who has

died. In accounting inventory is considered an asset.

Inventory management is primarily about specifying the size and

placement of stocked goods. Inventory management is required at

different locations within a facility or within multiple locations of a

supply network to protect the regular and planned course of

production against the random disturbance of running out of

materials or goods. The scope of inventory management also

concerns the fine lines between replenishment lead time, carrying

costs of inventory, asset management, inventory forecasting,

inventory valuation, inventory visibility, future inventory price

forecasting, physical inventory, available physical space for

inventory, quality management, replenishment, returns and

defective goods and demand forecasting.

Involves a retailer seeking to acquire and maintain a proper

merchandise assortment while ordering, shipping, handling, and

related costs are kept in check.

Systems and processes that identify inventory requirements, set

targets, provide replenishment techniques and report actual and

projected inventory status.

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Handles all functions related to the tracking and management of

material. This would include the monitoring of material moved into and

out of stockroom locations and the reconciling of the inventory

balances. Also may include ABC analysis, lot tracking, cycle counting

support etc.

Management of the inventories, with the primary objective of

determining.controlling stock levels within the physical distribution

function to balance the need for product availability against the need

for minimizing stock holding and handling costs.

In business management, inventory consists of a list of goods and

materials held available in stock.

An inventory can also be a self examination, a moral inventory.

B U S I N E S S I N V E N T O R Y

There are three basic reasons for keeping an inventory:

Time - The time lags present in the supply chain, from supplier to user

at every stage, requires that you maintain certain amount of inventory

to use in this "lead time"

Uncertainty - Inventories are maintained as buffers to meet

uncertainties in demand, supply and movements of goods.

Economies of scale - Ideal condition of "one unit at a time at a place

where user needs it, when he needs it" principle tends to incur lots of

costs in terms of logistics. So bulk buying, movement and storing

brings in economies of scale, thus inventory.

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All these stock reasons can apply to any owner or product stage.

Buffer stock is held in individual workstations against the possibility

that the upstream workstation may be a little delayed in long setup or

change-over time. This stock is then used while that change-over is

happening. This stock can be eliminated by tools like SMED.

C O N S I G N M E N T I N V E N T O R Y

What is it and When Does It Make Sense to Use It.

Consignment Inventory is inventory that is in the possession of the

customer, but is still owned by the supplier.

In other words, the supplier places some of his inventory in his

customer’s possession (in their store or warehouse) and allows them to sell or

consume directly from his stock. The customer purchases the inventory only

after he has resold or consumed it.

The key benefit to the customer should be obvious; he does not have to

tie up his capital in inventory. This does not mean that there are no inventory

carrying costs for the customer; he does still incur costs related to storing and

managing the inventory. So what’s in it for the supplier? This is where the

benefits may not be so obvious—or may not even exist. Let’s start with a

classic consignment model that has significant benefits for the supplier.

Where Consignment Works Best.

A supplier has a product or group of products that he believes will sell

if he can get them in front of end-users.

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The trick is that getting them in front of end-users means getting them

stocked in retail establishments. Retailers are hesitant to stock the product

because they do not have the same level of confidence in it as the supplier,

they do not want to invest the money and risk getting stuck with something

that may not sell. Because the supplier realizes in-store exposure is critical to

getting his products sold, he offers to stock his product in their stores. This

creates a condition of shared risk whereby the supplier risks the capital

investment associated with the inventory while the customer risks dedicating

retail space to the product. This also creates a condition of shared benefit

because neither the supplier nor the customer will benefit until the product is

sold to an end-user. This shared-risk/shared-benefit condition will often be

enough to convince a customer to stock the product.

For a more specific example, consider a bicycle manufacturer that

produces a wide range of bicycles ranging in price from a couple hundred

dollars to several thousand dollars. He has customers (local independent

bicycle shops) that stock his low-to-mid-priced models but are hesitant to

stock the more expensive bikes because they do not have the confidence that

their customers are willing to pay that much for a bike. And, if they do get a

customer that wants a high-end bike, they could always special order it for

them. The bicycle manufacturer strongly believes that getting his high-end

bikes in the shops where customers can see and touch them is critical in

driving up sales for these models as well as helping to promote his brand

which ultimately drives up sales for the lower cost models. The solution? Well

think you can take it from here. Consider this the classic consignment model

because it is the best-case scenario for applying the consignment inventory

model. It works well for: New and unproven products. 26



A G R E E M E N T I S S U E S

Both parties need to clearly understand the terms.

Real-time sales or period-end sales.

Time limit (must be purchased or returned within specified period).

What is the freight policy?

What is the return policy?

Who holds responsibility for damage or loss while in customer’s

possession?

What are the Insurance implications?

Exactly how and when is data exchanged? What data is exchanged?

How are miscellaneous transactions processed?

Cycle count adjustments,

Customer Returns (does a return initiate a credit from the supplier?)

Scrap

27



L O T S I Z I N G

This model will perform lot-sizing for minimizing total holding and set-up

costs when demands are not equal in each period. Methods include the

Economic Order Quantity (EOQ) Period Order Quantity (POQ), lot for lot,

part-period balancing method or Wagner-Whitin which finds the optimal

schedule. Lot sizing is almost invariably discussed in association with MRP

systems.

B I L L O F M A T E R I A L ( B O M )

a listing of the components their description, and the quantity of each

required to make one unit of a product.

A list of quantities of components, ingredients, and materials required

to make a product.

Not only specify requirements but also are useful for costing, and they

can serve as a list of items to be issued to production or assembly

personnel.

Material Requirements Planning System.

Based on a master production schedule, a material requirements

planning system:

Creates schedules identifying the specific parts and materials required

to produce end items.

Determines exact unit numbers needed.

Determines the dates when orders for those materials should be

released, based on lead times. 28



MATERIALS REQUIREMENT PLANNING (MRP)

Is a scheduling procedure for production processes that have several

levels of production? Given information describing the production

requirements of the several finished goods of the system, the structure of the

production system, the current inventories for each operation and the lot

sizing procedure for each operation, MRP determines a schedule for the

operations and raw material purchases. This add-in provides all the features

necessary to formulate and solve small examples.

J U S T – I N - T I M E

Just-in-time (JIT) is an inventory strategy that strives to improve a business's

return on investment by reducing in-process inventory and associated

carrying costs. To meet JIT objectives, the process relies on signals or

Kanban between different points in the process, which tell production when to

make the next part. Kanban are usually 'tickets' but can be simple visual

signals, such as the presence or absence of a part on a shelf. Implemented

correctly, JIT can dramatically improve a manufacturing organization's return

on investment, quality, and efficiency.

29

http://en.wikipedia.org/wiki/Return_on_investment


http://en.wikipedia.org/wiki/Kanban

http://en.wikipedia.org/wiki/Carrying_cost

http://en.wikipedia.org/wiki/Inventory


http://en.wikipedia.org/wiki/Business



S A F E T Y S T O C K

Safety stock is a term used by inventory specialists to describe a level of

extra stock that is maintained below the cycle stock to buffer against

stockouts. Safety Stock (also called Buffer Stock) exists to counter

uncertainties in supply and demand. Safety stock is defined as extra units of

inventory carried as protection against possible stockouts (shortfall in raw

material or packaging). By having an adequate amount of safety stock on

hand, a company can meet a sales demand which exceeds the demand they

forecasted without altering their production plan. It is held when an

organization cannot accurately predict demand and/or lead time for the

product. It serves as an insurance against stockouts.

REASONS FOR SAFETY STOCK

Safety Stocks enable organizations to satisfy customer demand in the event

of these possibilities:

Supplier may deliver their product late or not at all

The warehouse may be on strike

A number of items at the warehouse may be of poor quality and

replacements are still on order

A competitor may be sold out on a product, which is increasing the

demand for your products

Random demand (in reality, random events occur)

Machinery Breakdown

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Unexpected increase in demand

...and more

A commonly used approach is that Safety Stock should be decided based on

the following factors:

Demand: the amount of items consumed by customers, on average,

per unit time.

Lead Time: the delay between the time the reorder point (inventory

level which initiates an order) is reached and renewed availability.

Service level: the desired probability that a chosen level of safety stock

will not lead to stock-out. Naturally, when the desired service level is

increased, the required safety stock increases as well.

Forecast error: an estimate of how far actual demand may be from

forecasted demand. Expressed as the standard deviation of demand.

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I N B O U N D L O G I S T I C S

Inbound logistics does not have an agreed-upon definition in the industry.

Several questions arise when one attempts to define the term, for example:

Where is the "in" in inbound? Is outbound the opposite of inbound?

Clearly the definition of inbound logistics is a matter of perspective. If you are

the receiver of a shipment, the shipment is inbound to you; if you initiate or

send a shipment – as a raw materials supplier, manufacturer or vendor might

do – then it is outbound from you. For inbound logistics planning, the focus of

transportation management is on planning the receipt of the shipment. The

definition of inbound logistics, then, is related not only to the controller of the

shipment process, but also to whom takes ownership of the goods shipped.

Inbound logistics traffic departments do not simply manage shipments from

their own companies (outbound), they plan shipments from other companies

"in" to their location. Suddenly the transportation process becomes infinitely

more complex. With this complexity comes more opportunity to reduce

transportation costs – if transportation is well-managed.

32



The diagram shows modes of shipments made during the inbound

shipment process for retailers:

1) From vendor to a pool or assembly point as an LTL move; from

the pool to a DC as a TL move.

2) From vendor as a direct, non-multi-stop LTL move.

3) As a multi-stop from two vendors with a destination stop at both

the DC and a store.

4) As a multi-stop from two vendors.

5) As a multi-stop from the DC to several stores.

6) As a backhaul shipment.

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O U T B O U N D L O G I S T I C S

Examples of other services that are offered in the outbound logistics area are:

Line-hauls

Taking care of the bulk transportation movement of products between two

customer locations, for example a local warehouse and a regional

distribution centre.

Home delivery

Delivering furniture and electrical appliances directly into the homes of our

clients' customers. We offer services such as white glove delivery,

removal of packaging and installation of Furniture items.

Installation

Handling the installation of goods or parts at offices or in other work

environments.

Picking and packing

In most of the warehouse operations, providing order picking and pick & pack

services. Collecting items in the warehouse to combine them into individual

customer orders.

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Using the latest and most innovative systems to carry out these functions

to reach the highest possible quality performance levels

Returns Logistics

Managing the returns process for unwanted or damaged goods. These will

be reused, repaired or environmentally disposed of on behalf of the

customer.

Reverse Logistics

This involves the flow of surplus or unwanted material back through the

supply chain after meeting customer demand.

Sub-assembly

This is the assembly of a component from individual parts before onward

distribution.

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F I R S T – I N , F I R S T – O U T

First-In, First-Out (FIFO) - This method assumes that the first unit making its

way into inventory is the first sold. For example, let's say that a bakery

produces 200 loaves of bread on Monday at a cost of $1 each, and 200 more

on Tuesday at $1.25 each. FIFO states that if the bakery sold 200 loaves on

Wednesday, the COGS is $1 per loaf (recorded on the income statement)

because that was the cost of each of the first loaves in inventory. The $1.25

loaves would be allocated to ending inventory (appears on the balance

sheet). FIFO gives us a better indication of the value of ending inventory (on

the balance sheet), but it also increases net income because inventory that

might be several years old is used to value the cost of goods sold.

Increasing net income sounds good, but remember that it also has the

potential to increase the amount of taxes that a company must pay.

FIFO gives us a better indication of the value of ending inventory (on the

balance sheet), but it also increases net income because inventory that might

be several years old is used to value the cost of goods sold. Increasing net

income sounds good, but remember that it also has the potential to increase

the amount of taxes that a company must pay.

36

http://www.investopedia.com/terms/f/fifo.asp



INVENTORY RECORD ACCURACY

Inventory Record Accuracy (IRA) is a measure of how

closely official inventory records match the physical

inventory. Many managers equate Inventory Record

Accuracy with cycle counting, but there is a lot more to it

than just counting.

The units of measurement are either dollar based or count based. These two

bases have different purposes and may give widely differing results.

Accountants and financial auditors prefer dollar-based measurements of

accuracy. Their concern is to ensure that the inventory value stated on books

and tax returns is accurate at an aggregate level. Discrepancies on individual

items hold little concern provided that positive and negative discrepancies are

roughly equal and the total value is the same.

Operations and material management people have a stronger interest in the

accuracy of individual SKUs. If one SKU is short, they can rarely substitute

some other part or item that happens to be long.

WHY IS IT IMPORTANT?

The reasons for having accurate records are legion. Here are a few of them:

Financial Reasons:

Investors want to know that the book value is accurate.

37



Lenders who loan money with inventory as collateral want to protect

their loan.

Taxation often depends on inventory value. Overpayment of taxes

reduces profits and underpayment incurrs penalties.

Poor accuracy begets more inventory and requires more capital.

Inventory is often the largest consumer of capital for an enterprise.

Operational Reasons:

Stockouts interrupt production and create delivery delays.

People waste hours looking for misplaced or missing items.

When stockouts are frequent, inventory rises to compensate. This

unnecessary inventory requires space and capital.

Inventory turnover reflects overall manufacturing efficacy.

MRP and ERP systems require very high accuracies (95%-99%) to

function well.

Stockouts increase cost in a hundred ways and sap the time and

energy of everyone.

38



Methods to improve accuracy include Cycle Counting, Physical Inventory,

Transaction Reduction and Process Improvement. An optimal approach uses

them all.

Physical Inventory-- In a physical inventory, normal operations cease

while a physical count of every item is conducted. The counts are

compared to inventory records and, when necessary, the records are

corrected.

Cycle Counting-- A small number of items are physically counted,

daily, on a random or semi-random basis. The physical count is

compared to the inventory record. When necessary, the records are

corrected.

Process Improvement-- Process Improvement examines the

transaction processes. Changes are identified that reduce the

probability of error.

Transaction Reduction-- The most effective way to reduce errors is to

reduce the number of transactions. Fewer transactions introduce fewer

errors. Kanban, BOM simplification, cellular manufacturing and other

elements of Lean make this feasible.

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D O C U M E N T S

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P I C T U R E S

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PAMANTASAN NG LUNGSOD NG MUNTINLUPA NBP Reservation Poblacion, Muntinlupa City COLLEGE OF BUSINESS ADMINISTRATION

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“Nothing starts easy.Everything begins at some level of difficulty but one thing beautiful is the fact that what are most difficult are also the most rewarding and

the most satisfying”.

67

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