(Luận văn) improving the inventory management activities in phat dat joint stock company

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si... luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si... luan van tot ngh

INTRODUCTION

1 Context of the thesis

In the global economy, in order to develop, every business must ensure the autonomy in production and profitable business activities Businesses must pay attention to all stages in order to best meet the needs of business operations and improve the quality, lower production costs so that it is able to ensure competitiveness for the products

For manufacturing enterprises, warehousing activities, especially warehouse and inventory management, are particularly important If these activities are done well, businesses will reduce a large amount of costs including the cost of storage of raw materials, the cost of renting space, At the same time, good warehouse management will ensure adequate supply of raw materials for production, avoiding material shortages leading to production bottlenecks or shortages of market supply products

The management of warehouse and inventory has a strong impact on the performance of business but has not been given adequate attention, especially in small businesses Therefore, I decided to spend my internship at Phat Dat's warehousing department to be able to learn more about inventory management activities Eventually, I chose the theme: “Improving the inventory management activities in Phat Dat Joint Stock Company” for my thesis In addition, the thesis will clarify the pros and cons of inventory and inventory management activities at Phat Dat Joint Stock Company (JSC) and provide solutions to overcome the negative aspects

2 Subject and purpose of research

2.2 Purpose of research

The purpose of the thesis is to give recommendations and solutions to improve the inventory management activities at Phat Dat JSC

2.3 Missions of research

The thesis needs to focus on main missions as follow:

- Summarizing basic theoretical and concrete knowledge about the inventory and inventory management

- Analyzing the inventory management activities at Phat Dat JSC

- Giving solutions to improve the inventory management activities at Phat Dat JSC

3 Scale of research

The thesis analyse the activities realated to the invnetory management of Phat Dat JSC These activities mainly take place in the warehousing and manufacturing department of the company In addition, the data is calculated between 2017 and 2019

4 Methodology

4.1 Data collection

The thesis is made mainly based on the collection of secondary data, in addition to collecting primary data These two data sources are collected as follows:

- Secondary data: Analysis data is collected through accounting reports and business statements of the company Other sources are newspapers, magazines, statistic offices, and websites, etc

Secondary data is plentiful, varied, and comes from different sources Therefore, researchers must be familiar with the sources to exploit information easily and quickly

Secondary data is easy to collect and less time-consuming This type of data is an important document in research as well as other academic papers

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

However, secondary data is not enough when it comes to research because of the incompletetion

- Primary data: the data is collected by the writer while working at the company, based on the observation and recording process during the internship The data is considered simple and incompete.However, this is also a helpful source of information so that the writer can make conclution about the subject

of research

4.2 Data processing

Statistical, descriptive, and synthesized methods of data: using statistical tools to collect data and then analyze, compare, evaluate, and draw conclusions about the causes of the change

4.3 Case study

5 Disposition

The thesis includes 3 parts:

- Chapter I: Literature review about inventory and inventory management

- Chapter II: Phat Dat JSC and the warehousing management activities of the company

- Chapter III: Recommendations and solutions

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

CHAPTER 1: LITERATURE REVIEW ABOUT INVENTORY AND INVENTORY MANAGEMENT

1.1 Overview about inventory

1.1.1 Inventory definition

Inventory is the array of finished goods or goods used in the production held by a company Inventory is classified as a current asset on a company's balance sheet, and it serves as a buffer between manufacturing and order fulfillment (Kenton, 2019)

Inventory is either goods or materials or both of these that the company holds for different purposes It plays an important role in the business and other activities related Inventory appears in both manufacture and sevices For manufacture, inventory refers to all work that has occurred – raw materials, partially finished products, finished products prior to sale and departure from the manufacturing system In the context of services, inventory refers to all work done prior to sale, including partially process information (Wikipedia: Inventory, n.d.)

There are some main reasons for keeping an inventory which makes stook important to the business:

- Time: the time lag appears at different stages of the supply chain It is also called by a familiar name – lead time To maintain the production and shorten the ordering time, the company needs to store inventory and calculate other factors related

- Seasonal demand: the consumption of goods depends on periods of the year Special times such as the new year or vacations can affect customer’s psychology and demand

- Economies of scale: the cost advantages could be obtained more when the company store inventory specifically activities in bulk

- Uncertainty: the instability in supply, demand, etc is the reason to hold inventory to adapt to the production of the company

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

In short, inventory is needed in every sector of the economy Due to its importance, inventory has been studied for a long time and the theoretical framework about it is quite adequate Aspects such as classification of inventory and how to store it efficiently were presented throughout the years

1.1.2 Functions of inventory

There are some main functions as follow:

- Improving the service quality: inventory helps reduce the waiting time

of customers Also, defective products can be converted easily if there is any request from the buyer

- Reducing logistics cost: the costs for shipment, warehouses could be reduced thanks to suitable inventory

- Adapting unexpected orders: having enough inventory will offset the limited production capacity when there are unexpected orders with large quantities

- Saving cost for business: the company can preserve more inventory at low price periods to cut down buying cost as well as to use for business when the price rises

On the other hand, different industries would hold inventory for different purposes, which makes this asset become varied functional

1.1.3 Classification of inventory

Inventories are diversified and different industries have seperated ways to classify Therefore, to manage inventory well, we need to classify inventory by some specific methods:

Classify inventory based on purpose and uses

Inventory in the business will be divided into:

- Inventory for production: material, semi-produced goods, etc

- Inventory for sales: fully-made products and other goods for sales

This method helps managers make purchasing estimate as well as reserving plans for inventory and other business activities

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

Classify inventory based on source of formation

- Purchased inventory includes internal purchased inventories are bought from suppliers inside the system of the business (these suppliers and the company usually share the capital or have the same owner) On the other hand, external purchased inventories would contrast to internal purchased ones

- Self-produced inventory: stock produced and store by the company itself

- Inventory from other sources: inventories as gifts or venture, etc

It is easier for managers to calculated cost of good sold in this method so the firm could evaluate the stable level of inventories’ formation

Classify inventory based on Standard no.2

The standard was Issued and publicized together with Decision No 149/2001/QD-BTC of December 31, 2001 of the Minister of Finance In this standard, inventory is divided into:

- Goods purchased for sale: goods in stock, purchased goods being transported en route, goods sent for sale, goods sent for processing;

- Finished products in stock and finished products sent for sale;

- Unfinished products: uncompleted products and completed products not yet going through the procedures for being put into stores of finished products;

- Raw materials, materials, tools and instruments in stock, sent for processing, and already purchased but being transported en route;

- Costs of unfinished services (VAS 2 - Inventories, 2001)

This document is the standard for business to determine the types of inventory and how to make the balance sheet as well as the financial statements

In short, every method has a specific meaning to business activities Depends on the situation and the requests of the company, the managers can choose their ways of classifying inventory

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

1.2 Inventory management

1.2.1 Definition

There are many difinitions about inventory management since this is an important party of supply chain These difinitions could be all summarized to the following words:

Inventory management is the supervision of non-capitalized assets, or

inventory, and stock items As a component of supply chain management, inventory management supervises the flow of goods from manufacturers to warehouses and from these facilities to point of sale (Inventory management,

2020)

1.2.2 Functions and meaning of inventory management

To manage inventory is to:

- Make sure the quantity and characteristics of inventory stable during the production

- Take care of the value of inventory so that the stock so that the company can avoid damage and the decrease in value to inventory

- Ensure the capital of the firm at the reasonable and optimal level to increase the effect of capital and reduce the costs

Inventory management is significant because inventory is a valuable asset

to the business Managing current assets in a good way will bring back great influences on the accomplishment of the tasks and goals set out by the company

On the other hand, if these assets are not effectively used, the business activities will have difficulities Therefore, inventory management is one of the most important thing to do in business

There are two costrary sides of inventory management:

- If the firm wants a continuous production and there is no interruption, the manager will have to increase the amount of inventory in the warehouse

- On the contrary, a rise of stock makes the company bear more cost related to inventory

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

1.2.3 The costs of inventory management

Ordering cost

The costs relate to making orders, searching suppliers and other activities

in the order process such as negociation, etc

Storage cost

Costs of storage includes:

- Renal and other fee related:

+ Rental or depreciation for houses

+ Insuarance for warehouses or stores

- Costs for using devices and vehicles:

+ Rental or depreciation for devices and vehicles

+ Energy cost

+ Equipment operating costs

- Labour cost

- Costs of damage or broken inventory

- Other costs such as taxes, insurance for inventory, etc

1.3 Content of inventory management

1.3.1 Criterias for inventory management

To manage the quantity and quality of inventory by:

- Guaranteed the condition of the warehouse such as temperature, space, etc to preserve goods

- Classify the inventory suitably

- Apply appropriately methods and tools to manage the inventory in the strorage

To manage the value of inventory by: Control the capital of goods in

physical form as a basis for assessing the assets of enterprises and the efficiency

of using capital goods From there, the administrator sets the basis of a reasonable selling price and calculates the profit after sale

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

1.3.2 Models for inventory management

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

CHAPTER 2: PHAT DAT JSC AND THE WAREHOUSING MANAGEMENT ACTIVITIES OF THE COMPANY.

2.1 Introduction of Phat Dat JSC

2.1.1 Overview

- Company’s name:Phat Dat JSC

- Location : Bac Hong, Dong Anh, Hanoi

- Tell: 0977386986

- Fax: 0348836792

- Email: phatdat0666@gmail.com

- Business Code: 0102018662

- Legal Representative: Truong Van Phong

Phat Dat JSC was established in 25/08/2006 with the main business area

is producing wood household appliances such as table, chair, etc, and office stationeries like bookshelf With a wide range of products, the company has created a flexible business activity that can help to provide the most needed product and adapt the market’s demand at an instant point

Orders from other manufacturers are taken which makes the company become a production supporter producing semi-finished products or accessories

At the same time, the firm manufactures products based on typical designs and offers to customers by planning marketing and sale strategies These self-produced products are the advantages of the company in diversifying and expanding the business

The suppliers of the company:

- Dai Hiep Import and Export Co., Ltd

- Hoang Anh Gia Lai JSC

- Minh Long Production and Trading Co., Ltd

The customers of the company:

- TMC Hanoi production, trade and construction limited company

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

- Truong Thinh Trading and Import-Export Company Limited

- Xuan Hoa Vietnam JSC

- 3D JSC

- MM INTERIOR Vietnam Co., Ltd

1.2 Vision and mission

- Vision:

Become a leading company in the wood material field focusing on manufacturing productively to gain consecutive and sustainable development as well as the value of customers, employees, and community

- Mission:

To produce products with high quality, diversified designs and reasonable prices to meet the requirements of not only domestic but also international customers

To constantly renovate to expand the business relationship and to reach a higher position in the market

1.3 Organization of the company

Picture 1 Organization of Phat Dat JSC

Source: Administration Department

Phat Dat is a family company so there are just 30 labors regardless of the director However, the organization of the company is considered to be complete and reasonable because of the sufficiency of the departments Every department has its own missions and works together to maintain the operation

Warehousing and Manufacturing Department

Marketing Department

Technical Department Administration Department luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

The one who has the highest authority and takes full responsibility for any business activity of the company Also, the director is the legal representative of the firm and direct manager of departments represented by managers of these departments Furthermore, the director not only plans the business and investment but alsosigns the contracts and organizes the resources

- Advising and proposing salary, bonus and benefit regulations of the company’s officers

- Other duties according to the operation regulation of the accounting department and the company as well as the provisions of relevant laws

Business Department:

- Preparing statistical thesiss to analyze and comment on the business situation Therefore, making future business plans to improve the disadvantages

of current business activities as well as to adapt changes in the market

- Being responsible for checking and proposing solutions for implementation contracts and bad debt recovery, etc,

- Woking with other departments and supervising each other to ensure the accomplishment of the work

- Researching and proposing business strategies and selecting potential

customers, partners or compertitors

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

Warehousing and Manufacturing Department:

The department plays a key role in managing the company’s warehouse and producing activities according to the orders given by the director including:

- Producing ahead on working schedule and ensure the quality as well as quantity of products

- Storing inventory and other material needed for the production of the firm in an efficient way to avoid damage or loss of the goods

- Making thesiss to the director and other departments when there are changes in the inventory especially the redundance or short of material to produce and goods for sale

Administration Department:

Having tasks of recruiting and allocating the labors of the company The director could perceive the organization of the company in general as well as the working situation of every individual thanks to this department The

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

administration department also combines with the accounting department to decide the payments for the workers

2 Analysis the bussiness situation of Phat Dat JSC

To know about the business of a company and to evaluate its value, we will take a closer look at the fanacial data of the company in the last three years

Table 1 Phat Dat JSC business review 2018-2019

Source: Accounting Department

Revenue of the company rose continuously from 2017 to 2019 with an average increase of 18.5% and the COGS increased in this time too which led to unexpected profit results

In 2018, the profit of the company increased from 321 million dong to

414 million dong with the growth rate of 28.8% However, the growth rate decreased to 17.2% the year after

These numbers are the outcome of many reasons:

- The rise in general of the industry was one of the important reasons In

2019, the wooden industry's export turnover reached over 10.3 billion USD This industry spent nearly 2.55 billion USD to import wood products into Vietnam, mainly wood materials

- The increase in demand and income of customers has led to more consumption of high-value furniture

- New technology applied to production of enterprises The company has built a processing plant with the sawn - drying - surface coating process by automation technology to bring high efficiency The rate of sawn timber from

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

plantation forests was previously only nearly 50%, now with the automation technology, it has reached nearly 80%, with high quality of sawn timber meeting the requirements of the market

- The rise in the cost of goods sold was caused by an increase in costs such as transportation, materials and labor costs,

3 Warehousing activities in phat dat JSC

3.1 Human resource and types of inventory

Human resource

The warehousing and manufacturing department has 4 labors including:

Table 2: Human resource of Warehousing and Manufacturing Department

1 Mr Nguyen Quoc Huy Department

Manager

2 Ms Pham Thanh Huong Bookkeeper Bachelor 26

3 Mr Pham Minh Duc Staff Associate Degree 24

4 Mr Dinh Van Toan Guard Secondary School 42

Source: Administration Department

The activities related to produce and store goods are controlled by the manager – Mr Nguyen Quoc Huy, who has years of experience working in the warehousing field Starting working in the company since the early days, Mr Huy takes responsibilities for the storage and production as follow:

- Making decisions about receiving and issuing goods and procedures related

- Taking notes and making records about goods (quantity, condition of goods, etc, )

- Storage location of different types of inventory as well as methods and conditions of storing

Another important position is the bookkeeper Ms Huong who has worked in the company for 2 years, is responsible for checking the validity of

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

figures, invoices, documents (such as goods receipt and issue) and inputting data into the software to help control the inventory with the manager

Besides, the company hired two more workers to meet the increase in requirements of work Mr Duc and Mr Toan mainly work as stevedores and guards for the warehouse

In this department, despite the differences in the academic level and background, every individual has the same professional attitude and knowledge about the warehouse and the inventory inside thanks to the long working time Moreover, the key positions have work experience would be extremely beneficial to the company in the future Other advantages that could be considered are the familiarity of workers with the process and the combination

of ages

However, there are drawbacks when the labor force cannot adapt to the workload which increases by time As the business of Phat Datexpands, the company, especially the warehousing department would need to improve the working process and the workforce to enlarge the scale of storage and manufacture as well The salary and welfare is also a controversial topic between staffs The core employees are well paid while the unskilled labors like Mr.Duc and Mr.Toan received from 4,5 to 6 million per month Moreover, there are no necessary added benefits such as paid holidays at Tet or sick time

Types of inventory

To manage effectively the manufacture of the company, inventories need

to be classified clearly The inventories are divided into 2 main types according

to the activities of the company:

- The wood commodities for household and office stationeries, mainly basins, chairs and tables These products need to be stored carefully in good condition because they are easy to be broken or deformed, which leads to a decrease in the value of goods

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

- The wood products ordered from other manufacturers These products are usually the same as the first type of inventory above

- The semi-finished products used for the manufacturing activities of other companies

Due to the fact that Phat Dat JSC is a manufacturer, the first type of inventory accounts for the highest proportion in the storage Besides, raw materials are also stored to use for the production of the company However, the materials are often bought only when there are orders and they would be used immediately so this type of inventory is only kept in a short amount of time in the warehouse

3.2 The management of inventory

The record of inventory

Managing and recording activities are mainly handled by the accounting department and other department related The inventories are recorded with the cost which includes the cost of material, labor cost, and other directly related costs such as fixed manufacturing cost and variable manufacturing cost

The inventories which are not self-produced by the company such as the material and accessories also recorded with their costs The cost combines purchasing prices, tax, transportation costs, and other costs to take the inventories to the current condition However, if the net relizable value (NRV)

is lower than the cost, the NRV will be recorded in the accounting book

The periodic weighted average costing method is used by the accounting department to value of the company’s inventory by applying the average cost of on-hand inventory to each item of inventory stock This means that both the cost

of goods sold (COGS) and on-hand inventory are treated the same when it comes to determining the value This method is caculated using the following formula:

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si

The process of receiving and delivery inventory

The process for receipt of inventory

- Arrival of Shipment: when the truck arrives at the warehouse, the employees from the warehousing department will work with the driver to start unloading the truck The quantity and condition of the goods will be recorded

on the document, and then two parties will sign the document to verify

- Comparing documents: such documents as the original order, the shipping document, etc will be checked to make sure the correct record of inventory If there is any difference or discrepancy, the employees will note down and verify after that

- Storing inventory: after the stocktaking is done, the inventory will be stored in the warehouse on different shelves The goods which have large sizes will be located in specific places by the manager

- Entering the quantity and quality of inventory to the system: the documents now are used to update the quality and condition of inventory in the company’s system so that other departments and the director could know the situation of the inventory

- Announcing the discrepancies to the supplier: when all information about the inventory is uploaded, the one who made the order (usually the business department and sometimes the director herself) will review and compare the documents and the invoice sent by the vendor If discrepancies exist, the company will contact the supplier to negotiate about the compensation

or return of goods

The process for delivery of inventory

- Receipt of order: if any orders or transactions occur, they will be uploaded to the company’s system Notifications will be sent to the warehousing department for preparing inventory for shipment

- Picking the inventory: the warehousing department will prepare the inventory and documents needed after receiving the order Then, the employees

luan van tot nghiep download luanvanfull moi nhat z z @gmail.com Luan van thac si