Shan Foods

May 29

2014 Project based on supply chain (Procurement) of Shan Foods. SYED JABBAR ALI SHAH

Executive Summary

This report is on the Production department of the Shan Foods Private Limited

based on the interview with SYED ZIA UR RHEMAN (Manager Buying Supply

chain).

Shan Foods Private Limited was established in 1981 as a home based industry

selling recipe mix and with in no time it get a huge success and now it is a leading

Spice Manufacturer in Pakistan. Company is also slowly and gradually expanding

their operation throughout the globe.

In this report we identified how Shan food Pvt Ltd is managing their inventory in

order to get maximum availability in the market whenever customer demand. As

Shan Foods have a large number of SKUs so it is a big challenge of Shan Foods to

manage their inventory and fulfill the demand of their customer on time.

With state of the art integrated supply chain department Shan Foods Pvt Ltd is

sustaining their position in the market with providing availability of their every

SKU in the market. Shan Food is mainly managing two types of inventories that

are finished goods inventory and Packaging inventory for that separate MRP is

identified for both of them.

Shan Foods is effectively managing their inventory and they have removed all the

barrios and problems by effectively planning their inventories in order to reduce

their inventory cost.

Introduction

Shan Foods (Pvt) Ltd is a rapidly growing food company with presence in over 50

countries.

Strengthening their departments with candidates having extra ordinary

positive energy, obtain and edge in technology, and determined in execution,

with a passion for excellence.

History

Shan Foods started from a single small room some twenty five years ago.

Management decided to launch its very own brand and start a full-scale

manufacturing unit to cater to the taste of the local public.

Shan is one of the largest exporters of premium quality packaged spices, recipe

mixes, pickles and desserts with products adding taste and flavours

Vision

To be a global leader in food products and socially responsible company that

attains its quality standards so that Shan stands for tradition, trust and good

taste.

Mission

• To continuously develop and produce quality products.

• To be a consumer oriented company with keen insigne of food product.

• To obtain optimum result and retain highest quality standard through

efficient and motivation human resource.

SHAN FOOD COMPETITIVE EDGE

Shan Food always has an aggressive strategy.

Strategy implemented by Shan is Think Globally and Act Locally. Whereby Shan is

capturing middle class who can’t afford restaurant or prefer to eat home.

Shan tends to place the brand internationally by getting all international

certification and winning award.

Products of Shan foods

• Biryani products

• Authentic curries

• Stir fried food

• Lavish fried food

• Chat Masala

• Sumptuous BBQ

• Pickle product

• Deserts

• Plain spices

Supply chain process

• A company becomes stronger when its supply chain is well equipped to

meet every challenge.

• Supply chain team of Shan foods ensure that goods or shipment reach

their destination well in time.

Plan

• The planning process of Shan foods is depending on S&OP.

• The planning purpose of Shan foods is to achieved the target of R=R.

• Shan foods believed that planning should be right and in efficient manner.

Source

• The main objective of Shan foods sourcing department is to work with

quality suppliers.

• The department diligently pick and select the best quality spices.

• Company pays extra attention in obtaining raw Material.

Make

• The make process of SCOR model is referred to the production or

manufacturing facilities.

• Shan foods are dedicated to ensure the consistency of product by using

well equipped production techniques.

Deliver

• The supply chain team ensure that the goods or shipments reach their

destinations well in time to match market trends and customer demand.

Distributors

Country No of distributors

Pakistan 450

America 12

South Africa 01

Saudi Arabia 01

United kingdom 04

Warehouses

The ware house of Shan foods is located at the following areas:

• Karachi

• Rawalpindi

• Hyderabad

• Lahore

Buy

• In this last step, the product is delivering to the customer through

different distribution channels.

• Shan Foods always satisfy their customers by providing them high quality

products always on time.

Technology

• They have employed ERP & SAP system to improve efficiency & to achieve

their vision.

• The two most advanced technologies are fleet control system & V-Lock.

Fleet on control system

It’s a system that allows the tracking of those vehicles which are currently on

the road

ADVANTAGES

• Real time vehicle monitoring.

• Control over the work of various sensors in a vehicle.

• Cost reduction

• Profit maximization.

• Vehicle operational safety improvement.

V-LOCK

• The company uses the technology in packaging to keep the spices safe

from bacteria and moisture.

Value added

• Recipe of different dishes.

• Widely available almost.

• Adapting and implementing latest technologies to offer a variety of foods

products.

• Maintaining quality and safety standards all time.

Just in time

Just in time (JIT) is a production strategy that strives to improve a business' return

on investment by reducing in-process inventory and associated carrying costs.

Such as the presence or absence of a part on a shelf. Implemented correctly, JIT

focuses on continuous improvement and can improve a manufacturing

organization's return on investment, quality, and efficiency. To achieve

continuous improvement key areas of focus could be flow, employee involvement

and quality.

Material requirements planning (MRP)

Material requirements planning (MRP) is a production planning and inventory

control system used to manage manufacturing processes. Most MRP systems are

software-based, while it is possible to conduct MRP by hand as well.

Letter of credit

A letter of credit is a document issued by a financial institution, or a similar party,

assuring payment to a seller of goods and/or services provided certain documents

have been presented to the bank. These are documents that prove that the seller

has performed the duties under an underlying contract (e.g., sale of goods

contract) and the goods (or services) have been supplied as agreed.

WAREHOSE OF SHAN FOODS

Warehouse is a commercial building which is used for storage of inventories. They have in-house warehouse due to reduce damage percentage of finished goods. As we know, foods item should be keep in well temperature due hygiene purpose due to save the health of humanity. They have more than 150 vendors to supply the goods in market as well, all finished goods are placed in proper shelf to maintain SKUs, & they have much place to future expansion according projection base quantity or market demand with the help average monthly sales report. Benefits of In-house Warehouse:

It will reduce the damage cost of merchandise,

Reduce the transportation cost

Strong check & balance on inventory Security System of Warehouse: Shan Foods (Pvt.) Ltd. Also using the close circuit cameras at each entrance & exit points of warehouse to ensure workers will not be stole or misuse of product. If somebody try to do such type of things so management punished him to learn lesson for others.

INVENTORY MANAGEMENT SYSTEM

Inventory management based on forecasting that was given by Marketing & Sales

department. On the basis of required demand, design Master Production

Schedule; also remember the MPS safety covers are incorporate for meeting

uncertainties, in order to achieve the following objectives:

To maintain efficiency of operations.

To meet variation in product demand.

To allow flexibility in production scheduling.

To provide a safeguard for variation in raw material delivery time.

To take advantage of economic purchase order size.

In-transit inventory.

In-transit lead time.

Also continuous review the following system

Reorder point system and fixed order quantity system.

For independent demand items.

Tracks inventory position.

Includes scheduled receipts, on-hand inventory, and back orders (an un

filled customer order or demand against an item, whose current stock level

is insufficient to satisfy demand)

For each of the preceding reasons, be aware that inventory is costly and large

amounts are generally undesirable. Long cycle times are caused by large amounts

of inventory and are undesirable and also increase the following inventory relative

cost as well as a major cause to decrease profitability and competitiveness:

Holding / carrying cost.

Setup / production change cost.

Ordering cost.

Shortage cost.

According to inventory policy at Shan Foods, 15 days stock covers are kept

for Finished Goods, Packaging Materials covers are depend on the lead time of

each component like Hard Packs, Laminated rolls etc. These packaging

accessories are managed by procurement department according to BOM, & fulfill

the requirement of Purchase Order.

Importance of Inventory Management System

Inventory management department is not important only in Shan Foods but in

every manufacturing industry, it plays a very vital role in making the healthy

profitable by efficient processes & timely decisions.

Reality is that if you don't have control of your inventory management, you will be

unable to determine that you should have how much inventories on hand to

handle the needs of your customers. Even worse than that you will not have

enough raw material or inventories on hand to produce the products then, how

do you meet the needs of your customers.

It is important to keep in mind there are several different functions of inventory

management such as: raw material inventory keep on hand for production; work

in progress inventory which includes any of the goods that are in the production

process and finished goods inventory or the products that are ready to ship to

customers.

Without inventory management it would be difficult for any company to maintain

control and be able to handle the needs of their customers. It should be known to

the company where your inventory is and where it's going to fulfill the need of

customer. Unless you can meet the needs of your customers you will soon lose

the market share and enables the competitors to grab your market share.

Inventory management has always been important to sustain the growth and not

ignore the importance of inventory management in every aspect.

SHAN FOODS INVENTORY MANAGEMENT SYSTEM

Shan Foods inventory management department is efficiently practicing and

managing their inventory in order to maintain their position and availability of

their stock in the market. Their Planning department leads the whole and supply

chain in Shan Foods like other leading organizations, Procurement, logistics

distribution/customer services, materials management are under the dominancy

of planning department.

How Shan Foods Manage Their Inventory

In Shan Foods there are two types of inventory being managed.

Raw Material Inventory

Packaging Inventory

Finish good Inventory

Raw Material Inventory

They have 15 days stock to fulfill the requirement. According to inventory policy at

Shan Foods, 15 days stock covers are kept for Finished Goods. The efficient

inventory management is when the demand is fulfilled as per the customer

required quantities and timelines.

Ordering Process of Raw Material:

In Shan Foods Raw material procured on the basis of Yearly Sales Report, Monthly

Sales report excluding seasonal quantity or occasional quantity requirement.

Finish good inventory

Finished goods inventory is managed through forecast which is given by Marketing and

Sales Department, on the basis of required numbers master production schedule (MPS) is

identified, in MPS safety covers are incorporate for meeting uncertainties, According to

inventory policy at Shan Foods, 15 days stock covers are kept for Finished Goods. The

efficient inventory management is when the demand is fulfilled as per the customer

required quantities and timelines, at Shan Foods the inventory is kept according to the sales

requirement with safety covers of each SKUs, safety covers are reviewed on the basis of

peek and lean seasons to prevent inventory obsoleteness

Packaging Inventory

Packaging Materials and there inventory is managed through Forecast which is given by

Marketing and Sales department on the basis of that MPS is identified, this MPS identify the

requirement of packaging through Bill of Material then MRP (Material Requirement

Planning) created then Shan Foods order their different supplier for different material

accordingly an then packaging material is manufactured and stocked. Its safety covers are

dependent on the lead time of each component like Hard Packs, Laminated rolls etc.

First in First out System (FIFO)

Shan Food (Pvt.) Ltd. Using the first in first out system, they manage their inventory by the

placement of items in shelf. Firstly they dispatched the older item rather than the new item

due to save the product expired. FIFO system also reduces the damage the packaging of

each item & also save the cost as well.

Counter Cycle Method

Shan Foods (Pvt.) Ltd also using following counter cycle method to manage & check &

balance the finished goods inventory.

Physical Count:

The management staff of warehouse perform the physically count of each SKUs on monthly

base.

Electronic Count:

They also use the electronic count by System (Oracle) & generate the reconciliation report

by weekly basis. It will make working more efficiently & provide actual figure of flow of SKUs.

Stock Keeping Units (SKUs) Of Shan Foods

Shan Foods have very diversified product line due to which they have very large

number of SKUs which are mention as below

Spices more than 100 SKU’s

Desserts more than 25 SKU’s

Pickle 25 SKU’s

Paste 3 SKU’s

Chutneys 6 SKU’s u’s

Recently launched successfully SHOOP Noodles.

It is very difficult for the company to maintain the demand and supply of very

large number of SKUS. With the help of state of the art planning department Shan

Foods is efficiently managing their inventory of each SKUs on the basis of their

demands. For example they have massive demand of their chat Masala in the

month of Ramadan so they efficiently plan their production and inventory

management in order to fulfill the demand of the market for that SKUS. Moreover

they plan their production and managed the inventory of each SKU according to

the market demand. Shan Foods maintain their SKU’s by monthly, fortnightly,

annually internal & external audits.

Tools through Which Shan Foods Manage Their Inventory

Following are the tools through which Shan Foods is managing their inventory

Annual Operation Plan (AOP).

Monthly Forecast.

MRP.

Safety Covers.

Managing Fluctuation in Demand

Shan Foods is effectively managing the fluctuation in demand of their SKUs.

Different occasions and seasons are kept in planning to meet the demand

variation:

Eid occasions are especially for spices, Chaat Masala, Desserts, and Pickles

etc.

Muharram-ul-Haram for Haleem Range.

Oriental Range for winter.

KPIs (Key Performance Indicator) For Evaluating Inventory

Shan Foods is evaluating their inventory management on the basis of following

KPIs

Number of days in inventory.

Inventory Cost.

Inventory Availability.

Inventory Scoring recently implemented for Packaging Materials

Inventory.

CHALLENGES FACE IN INVENTORY MANAGEMENT

Following are the challenges faced by Shan Foods regarding inventory

management.

As Shan Foods have very large number of SKUs for that inventory of

packaging material, work in progress inventory and finished goods

inventory are managed separately which is a big issue for Shan Foods.

Inventory managed cost are very high for Shan Foods Pvt Ltd

Due to managing huge inventory there large amount of capital got tight

up..

Countering To the Challenges

Inventory management is a critical and complex process which has a very huge

effect on organization if it is not effectively managed. It would be a huge cost

bear by the company if there are any loop holes in inventory management which

effect the whole organization and can yield in loss of sales and loss of customer

for lifetime

Shan Foods Pvt Ltd is effectively managing their inventory in order to have 100

percent availability in the market when needed.

It is the policy of the company to manage 15 days buffer stock (safety stock) in

order to tackle demand fluctuation. Moreover company annually, monthly and

fortnightly monitor the inventory position and planned their production accordingly. This

frequent monitoring reduces the cost of inventory managed. Customer order filling rate is

important tool Shan food is using to monitor their inventory.

Inventory management is according to their demand in market and proper precaution is

followed in order to effectively meet demand fluctuation. They also monitor their inventory

position on regular basis in order to eliminate any short fall in inventory.

R e c o m m e n d a t i o n

• Apart from everything, one of the growing sector in food industry is the

frozen foods, though a new field for Shan foods but with the current

performance in spices and the quality it maintains, Shan has strong

chances in making its mark in the frozen food category as well.

C o n c l u s i o n

• Convenience, environmental concern, increasing acceptance of food as

having therapeutic value are some of the dimensions, organization needs

to study and develop new users for their spices

• Inventory management is very important for every organization as it has a

direct impact on overall revenue of the company. There are examples

where companies are shut down or liquidate because of poor inventory

management. A huge amount cost bear by the company if their inventory

is not properly managed because if the inventory got short it creates

availability issue which yield in loss of sale as well as loss of customer for

life time.

• Shan Foods is effectively managing their inventory by the help of

integrated supply chain department. Their planning department is

effectively planning their inventory of every SKU in order to eliminate their

short fall in inventory and have 100 percent availability in the market when

needed.

• The company is effectively managing the demand fluctuation by proper

planning and proper safety covers. Inventory management is a very critical

process for Shan Foods and they monitor it on regular basis and planned

their management accordingly.