UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ TRAN THI BICH NGOC POOR DEMAND PLANNING IN MEIZAN CLV COMPANY MASTER OF BUSINESS ADMINISTRATION Ho Chi Minh City - 2020 TIEU LUAN MOI download : skknchat@gmail.com 2 UNIVERSITY OF ECONOMICS HO CHI MINH CITY International School of Business ------------------------------ TRAN THI BICH NGOC POOR DEMAND PLANNING IN MEIZAN CLV COMPANY MASTER OF BUSINESS ADMINISTRATION SUPERVISOR: DR. TRAN PHUONG THAO Ho Chi Minh City - 2020 TIEU LUAN MOI download : skknchat@gmail.com 3 Abbreviation Explanation S&OP Sales and Operation Planning MOQ Minimum order quantity SKUs Stock keeping units POS Point-of-sales IT Information technology TIEU LUAN MOI download : skknchat@gmail.com 4 Table of Contents EXECUTIVE SUMMARY .1 Meizan CLV company overview .1 Over warehouse capacity and high stock aging .1 Poor demand planning .2 Poor purchasing performance .3 Main problem validation .4 Problem definition and consequences .1 Improper forecasting method .2 Inaccurate input information .3 Misunderstand of internal communication.3 Main cause selection .1 Point-of-sales (POS) data collection .2 Market survey purchasing from data vendors. 34 TIEU LUAN MOI download : skknchat@gmail.3 Action Plan in the organization .1 Summary of Research Method .2 Summary of Interviews .3 A summary of Financial Reports. 53 TIEU LUAN MOI download : skknchat@gmail.com 6 LISTS OF TABLES Table 1: Warehouse utilization of Meizan CLV in 2017 - 2019.
11 Table 4: Closing stock of finish good of Meizan CLV Company in 2017-2019. 16 Table 5: Monthly demand forecast versus actual sales in 2019. 17 Table 6: Raw materials stock aging report in Meizan CLV Company in 2019. 19 Table 7: New project spending report in Meizan CLV Company in 2019.
25 Table 8: Cost arising from over stock holding. 25 Table 10: Interview results with Marketing Director of Meizan CLV. 30 Table 11: Summary solution options. 36 Table 12: Action Plan in Meizan CLV Company.
38 Table 13: Summary of Research Method. 40 TIEU LUAN MOI download : skknchat@gmail.com 7 LISTS OF FIGURES Figure 1: Organization chart of Meizan CLV. 10 Figure 2: Operation flow chart of Meizan CLV Company. 15 Figure 3: Initial map.
20 Figure 4: Updated map. 22 Figure 5: Two ways feedback in communication of Meizan CLV. 29 Figure 6: Cause and effect map. 32 TIEU LUAN MOI download : skknchat@gmail.com 8 EXECUTIVE SUMMARY Demand planning is critical step in Sales and Operation Planning process which ensure operation in manufacturing work smoothly, make balance between supply and demand to avoid wasting from overstocking inventory as well as loose customer satisfaction from shortage of stocks.
Bursa (1) said that in order to respond to uncertainty of market, demand planning as the key driver in the process to make high demand forecast accuracy with suitable method chosen such as leverage multiple demand signals (sales and order history, shipments, point of sales, new product launching plans, promotions program, syndicated data, competitors’ information, etc. Meizan CLV Company (Meizan CLV) is manufacturing company in food industry being high competitive market with high market volatility and significant impact from competitors. It requires a good demand planning to ensure smooth operation, optimize costs as well as using working capital efficiently to gain competitive advantage. Meizan CLV has strong sales growth during operation since started in mid-2017; however too high stock level in warehouse will invite some serious issues which affect to smooth of operation as well as long term growth of company.
Observing this problem, this study will analyze analyses to find out cause of problems and create solution to solve the exist problem in Meizan CLV. TIEU LUAN MOI download : skknchat@gmail.1 Meizan CLV company overview In the general trend of the integration process, the lifestyle of Vietnamese people gradually changes in the Western style, fast food chain stores, supermarkets, restaurants, and cakes are increasingly developing. Aiming to meet the increasing demands of consumers for value-added, safe and healthy foods and convenience and in accordance with modern life, Meizan CLV with main business is producing value-added foods from cereals established and put in operation in 2017 has been constantly investing in research and development, product diversification, applying many advanced technologies to production and building, implementing and maintaining the quality management system and food safety in accordance with FSSC 22000 international standard and ISO 14001 environmental management system, step by step affirming its leading position in the value-added food products processed from cereals in Vietnam and Laos markets and Cambodia. Currently, Meizan CLV Company uses automation system with closed processing in producing value-added foods from cereals.
Especially, in macaroni and egg- noodle segment, only Meizan CLV applies automation system in order to gain cost competitive advantage with small manpower as well as low manpower costs. Main product segments of Meizan CLV include premix products, macaroni and egg noodle with brand Meizan. Premix segment includes crispy frying premix, seasoned crispy frying premix, Vietnamese pancake, corn starch and tapioca starch with main competitors such as Tai Ky, Ajinomoto, Vinh Thuan, Huong Xua,.Macaroni and egg noodle competing with main competitors is Safoco being long-standing brand in market. Besides, basing on the available of distribution of Wilmar in Vietnam, it strongly support for Meizan to penetrate grain value added processing industry.
After three years operation, Meizan Company reaches at third in the market in which number 1 in crispy premix segment, number 2 macaroni and egg noodle and other segment such as pancake, corn and tapioca starch are still low due to Meizan CLV has just entered this market from 2019. Mission of Meizan CLV is that to be the Vietnam largest and most innovative player in consumer-pack processed grain food (excluding instant noodle and bakery) in market. Enhance healthy and satisfaction of customers and consumers through constantly improving product quality. TIEU LUAN MOI download : skknchat@gmail.
Ho Diep Anh Khoi General Director Ms. Tran Thi Bich Ngoc Strategic planning supervisor Mr. Luu Huynh Mr. Dao Thai Huy Mr.
Co Dinh Huy Ms. Do Thi Bich Ms. Tu Ngoc Phuong Ms. Nguyen Phuong Marketing Director Chief Accountant Plant Director HR manager Procurement Thao Brand manager Ms.
Duong Hoang Thoai Mr. Vu Manh Cuong Ms. Le Thuy Ai Ms. Nguyen Thuy Mr.
Le Ngoc Huynh General accountant Production Manager HR supervisors Tien Marketing manager Sales planning for Ms. Le Ai Nga Mr. Nguyen Viet Hung supper market Payment accountant Workshop Manager Ms. Bui Truc Ly Mr.
Nguyen Tang Huy Sales planning for Production accountant S.E manager distributors Other accountants Mr. Le Kha Sales plannig for Logistic manager promotion program Figure 1: Organization chart of Meizan CLV Meizan Company with general director being responsible for business operation and performance was divided in to seven main departments including: Marketing department: takes responsibilities of introduction products to customer, finding potential customer, receiving orders, complaints and feedback to customers in market. Accounting department: is responsible for check the accuracy of bill and document before paying, recording and reporting the cash flow transactions of a company. Besides, this department has some key roles and responsibilities, including accounts receivable, accounts payable, payroll, financial reporting, and maintaining financial controls.
Plant: includes four main sub departments such as production is to manufacture products, workshop and maintenance is to repair and maintain production system if have breakdown occurring, S.E is to ensure safety and environment of factory, and logistic to storage and distribute goods to customers. Human resource: it covers but is not limited to human planning, hiring (recruitment and selection), training and development, payroll management, rewards and recognitions, Industrial relations, grievance handling, legal procedures etc… TIEU LUAN MOI download : skknchat@gmail.com 11 Brand department: do advertising to bring product to be closed to customer by above the line and below the line activities. Besides, brand also design packaging for products, information in packaging legally. Procurement: is responsible for finding suppliers and purchasing material in order to make sure stable material supply for production and daily activities for company.
Strategic planning department: is responsible for management accounting in company such as evaluates and monitors performance of all departments’ operation as well as business level and report to board of directors.1 Over warehouse capacity and high stock aging Inventory of manufacturing firm includes raw materials, work in progress and finished goods. All those are stored in warehouse to manage. Meizan CLV has a warehouse with about 1,000m2, in which 700m2 for finished goods storage and 350m2 for raw materials. According to table 1, warehouse utilization, which is average numbers of stocks every day in warehouse are over capacity of warehouse, is low in 2017 due to Meizan CLV has just ran 6 months, while warehouse utilization in both 2018 and 2019 being about 120% and 105% on average respectively.
Thus, some stocks occupy space of aisles and overload together. Year 2017 2018 2019 Sales volume (tons) 916 2,290 3,870 Average closing stock (tons) 82 184 423 Warehouse capacity (tons) 154 154 403 Warehouse utilization 53% 120% 105% Source: Internal report of Meizan CLV Company 2017-2019 Table 1: Warehouse utilization of Meizan CLV in 2017 - 2019 Sales volume has increased significantly from 916 tons in 2017 to 3,810 tons in 2019. Thus, in order to meet requirement of a surge in sales volumes, Meizan CLV was expense capacity from 154 tons in 2017 to 403 tons in 2019 which allows to stock about 2 weeks of sales TIEU LUAN MOI download : skknchat@gmail. However, in fact that, Meizan CLV performed not well as target with longer than 2 weeks stock holding.
According to Mr. Kha, warehouse manager, who shared information on high level of inventory in warehouse We have expanded warehouse to satisfy stock increasing in 2019. The warehouse capacity allows us to stock about one week or maximum 2 week of sales according to rule of our group. While stock stays longer than 2 weeks leading to waste space and over warehouse capacity.
All inventories include ingredients, packaging materials and finished goods will store in warehouse to monitor. According to table 2, the movement of stocks in 2017 is about 13-17 days, while it is low, stay over 1 month in warehouse in 2018, and although there is an improvement in 2019, about 10 days for finished goods, 20 days for ingredient materials and up to 45 days for packaging, it’s still high stock aging causing over capacity of warehouse. Year Finished product Ingredient materials Packaging Unit Number of days Number of days Number of days 2017 13 14 17 2018 32 33 61 2019 10 25 45 Source: Internal report of Meizan CLV company 2017-2019 Table 2: Average stock aging of Meizan CLV (days) in 2017-2019 In additional, table 3 shown that inventory turnover of Meizan CLV has an improvement in 2019 about 6 from10; however it’s still too low comparing to industry about 14 in 2018-2019 (2). The slow movement of stock cause high utilization of warehouse.
TIEU LUAN MOI download : skknchat@gmail.com 13 2017 2018 2019 COGS 945,000 3,193,245 5,291,344 Inventory (USD) 361,904 500,783 516,094 Inventory turnover 2.6 6 10 Inventory turnover of 18.7 Food industry Source: Internal report of Meizan CLV company 2017-2019 Table 3: Inventory value and turnover of Meizan CLV in 2017-2019 Brigham and Ehrhardt as cited by Norazira (3) stated that a low turnover is because products tend to deteriorate as staying long in warehouse. It can be interpreted as low sales or high inventories.1 Problem analysis In Meizan, the linkage between the production department and sales departments is shown in the sales and operational planning process. Particularly, this process helps balance demand and supply, including sales, marketing, demand management, production, inventory management, and new product development and introduction. According to many researchers as cited in Ivert et al.
(4), the S&OP process is descripted into five principal activities: Activity 1: a sales/marketing department is in charge of forecasting demand for coming plan period. Activity 2: the sales/marketing department build plan for future sales and delivery volumes, and take into consideration of inventory size and the extent of order backlog.