GLOSARY

Ordering cost – the cost associated with replenishing the stock of inventory being held.

Periodic inventory system – an order is placed for variable amount after a fixed passage of time.

Reorder point – when inventory reaches a specific level

EOQ – the optimal order quantity that will minimize total inventory costs.

Quantity discount – price discount on an item if predetermined number of units are ordered.

Base – is the basic of a cake

Safety stock – a buffer added to the inventory on hand during lead time

GALLERY

RESULTS FROM THE INTERVIEW: FORECASTING

As we discuss before, a forecast is a prediction of what will occur in the future.

Puan Roslina Ahmad forecast the demand for her products by using qualitative forecast method. This means she will forecast customers’ based on her judgment and past experience. She said that she never use any quantitative forecast method in determine customers’ demand behavior.

She will forecast demand in short range to midrange up to at least next year’s demand. Lyn Bakery and Café’s demand behavior is seasonal pattern. The demand for her cakes will increase during celebration days like mother’s day and teacher’s day in May, father’s day in June and of course during school holidays whereby bride and grooms will buy their wedding cakes (as people love to get married during school holiday).

For biscuits, the demand will increase extremely high during festive seasons, which is Hari Raya Puasa where people nowadays thought it is easier to buy biscuits than make it by themselves.

We will go deeply on how she forecasts her demand for his biscuits on August (specifically on Hari Raya Puasa festival).

We have mentioned before that Puan Roslina Ahmad predict her demand based on last year’s performance.

Lyn Bakery started its business on 2009. So, for that particular year, the demand for her biscuits was not so good. But in 2010, people getting to aware of the existence of her products. So, she forecast demand for her biscuits for August will be ten percent of her total sale for the whole year. The total sale for that particular year was RM70, 000 (not the real amount). So, ten percent from RM70, 000 will be RM 7,000.

Puan Roslina said that she doesn’t worry if all of RM7, 000 of biscuits didn’t finished by August. This is because, what she is going to do is she will put them at her shop to meet next month’s demand.

Those forecast biscuits that cannot meet the demand or she called them ‘balance group’ or we called them forecast error, will not be selling at any discounted price.

She said, she does not want to sell her forecast error at discounted price because she spent the same cost and effort for forecast error as same as other forecasted, inventories that meets demand during Hari Raya Puasa.

She predicts the demand for this year 2011 will be 30 percent from the total sale for the whole year. She increases the target from 10 percent in 2010 to 30 percent in 2011 because she is confident on her customer. She said that this year, her business is stable enough to compete with other bakery. Plus, her customer has increase their awareness towards her products because she has done extremely on promoting her bakery as well as her products.

Comment on forecast:

Lyn Bakery will face problems if forecast not meet demand for this becoming Hari Raya Puasa. Puan Roslina maybe expect too much on her customer. We would like to suggest to Puan Roslina to do some research on how to forecast the demand. In addition, she has to learn the forecasting process. From that, she can make a realistic and achievable forecasted demand.

RESULTS FROM THE INTERVIEW: INVENTORY

As we mention before, inventory is a stock of items kept by an organization to meet internal or external customer demand (Russell & Taylor, 2009).

Lyn Bakery’s inventories can be divided into five groups:

i. Raw materials – flour, eggs, butter, sugar, … etc

ii.Purchased parts and suppliers – Lyn Bakery got inventories supply from Yummy Bakery.

iii.Work-in-process products – sponge cake and butter cake base. There are two flavors chocolate
and vanilla.

iv.Tools and equipment – mixer, orange, … etc

v.Finished goods – cakes, biscuits, bun, … etc

Madam Roslina manages her inventories very well. She will drive to suppliers store to buy raw materials by herself. If the supplier delivers inventories, they will charge extra cost for delivery, even though she always buys from the same supplier. By doing this, it will decrease ordering cost rather than if the suppliers deliver to the shop.

Core raw materials are flour, eggs, sugar and butter. These materials including all other materials are bought weekly. This shows that Lyn Bakery is using periodic inventory system.

Madam Roslina will check on her inventories weekly and buy inventories that reach reorder point. She didn’t do calculation on EOQ to determine the optimal order size that will minimize her total inventory cost. She estimates reorder point of her inventories based on her past experiences.

There are some times when she goes and buy her inventories (raw materials), the suppliers offer price discount on item that are bought in higher quantities. This is called quantity discount.

As she didn’t practice calculation on EOQ, she will decide which amount to buy based on her customer’s demand on that specific date or month (this will be explaining further in forecast).

Cakes and bun will last for three to four days. So, because of this, Madam Roslina will makes work in process inventories for her cakes (or she called them ‘base’ for her cakes) thrice a week.

These ‘base’ that she makes are vanilla and chocolate flavor. She makes 10 cakes ‘bases’ each time. So, it will be 30 cake’s bakes for the whole week.

She said from that 30 cakes’ bases, 20 of them are for sale and the other 10 are safety stock in case when she receives any order within that particular week.

Comment on inventory management:

Lyn Bakery is situated in low public area. So, her customer demands are very small. Her cakes demand based on regular customers and walk-in customers which are not very much. She will throw away cakes and buns after four days.

These may lead to wastage as the cakes will expired in three to four days and she will keep on making her cakes’ bases thrice a week. Maybe she can learn to calculate her EOQ, so she won’t suffer much earning cost.

But somehow, the way she is being concern and particular on the hygienist of her products, we will give a bow to her – salute.

RESULT FROM THE INTERVIEW: CAPACITY AND FACILITIES

CAPACITY

Capacity is the maximum capability to produce.Capacity planning takes a several levels of detail.Lyn Bakery and Café also have their own long term capacity planning where it is strategic decision that establishes a firm’s overall level of resources.Capacity decision affect product lead times,customer responsiveness,operating costs and a firm ability to compete.Puan Roslina Ahmad said, plan and think when to increase their capacity,and how much to increase it, are critical decision.

Puan Roslina Ahmad use the Average Capacity Strategy.This capacity is expanded to coincide with average expected demand.For example,Puan Roslina have a planning for some special day for example mother’s day,father’s day,teacher’s day,Hari Raya and so on. With this planning Puan Roslina can moderate strategy in which managers are certain they will be able to sell at least some portion of expanded output.and endure some periods of unmet demand.Aprroximately half of the time capacity leads demand and half of the time capacity lags demand.

FACILITIES

Lyn Bakery and Café also particular with facility layout where it refers the arrangement of activities, process, workstation, storage and common areas within an existing or proposed facility.What can we see is Lyn Bakery and Café have a smooth flow of work,have a good material and very concern about Halal product,people,which Puan Roslina have a dedicate workers and some information through the system.What we can see also,Lyn Bakery and Café have a effective layouts where Puan Roslina did:

1.Minimize movement and material handling cost

Puan Roslina very particular about this,she said to handling material cost..she will minimize something that is not very important and more focusing with something that really important,for example,minimize on renovation shop,so the money can focus to handling material cost that always changes.

2. Utilize Labor Efficiency

Lyn Bakery and Café have only 2 workers that are very professional with cake and bakery. They also have a certificate in bakery courses.

3.Facilitate communication and interaction between workers,between workers and their supervisor and between workers and customers.

Puan Roslina said that communication are very important between them,because it can avoid from miscommunication between them.and can increase confident level between them and their customer.

4.Promote product and service quality

Puan Roslina promote their product with trust of quality product.She believe,when the product are very quality and tasty,it can make customer satisfied.While service quality,Puan Roslina make sure the timing for serve the food not too long,around 5 to 10 minutes.

PROCESS LAYOUTS

The process layout also known as functional layouts, but little bit disspointed Puan Roslina does not give us to know their process in the kitchen. We also can’t see how they make the bun, cake and so on.

Just we know is when the process of orders and food are being serve are not take too long. It take just 5 to 10 minutes.But if customer want order the cake, it take 2 days working days to finished and prepared the cake based on customer order.

PRODUCT LAYOUTS

Is also known as arrange activites in a line according to the sequence of operations for a particular product or sevice.Each product has its own line specifically designed to meet its requirements.The flow of work is orderly and efficient,moving from one workstation to another down the assembly line until a finished product comes off the end of the line.

The advantage of the product layout is its efficiency and ease of use. The disadvantage it its inflexibility.The product or service is a standard one made for a general market,not for a particular customer.Because of the high level of demand,product layouts are more automated than process layouts and the role of the workers is different.

DESIGNING SERVICE LAYOUTS

Service layouts are designed in much the same way as process layouts in manufacturing firms,but the objectives may differ.In Lyn Bakery and Café,Puan Roslina use the freeflow layouts for chair and table where customer will waiting for food.It encourage browsing,increase impulse purchasing and are flexible and visually appealing.Lyn Bakery and Café also use Grid Layout to present their bun,cookies and so on.The Grid Layout will encourage customer familiarity, low cost, easy to clean,secure and good for repeat customers.Service layout also concerned with the allocation of space to departments,the location of special displays,the efficiency of checkout procedures and protection from pilferage

DESIGNING PRODUCTS LAYOUTS

A product layout arranges machines or workers in a line according to the operations that need to be performed to assemble a particular product. From this description,it would seem the layout could be determined simply following the order of assembly as contained in the bill of material for the product.

Product layout or assembly line are used for high volume production.To attain the required output rate as efficiently as possible,jobs are broken down into their smallest indivisible portions called work elements.Lyn Bakery and Café sometimes use the work elements,which is so small,that they cannot be performed by more than one worker or at more than one workstation.For example preparing designing of cake which is must have their own creativity.But it is common for one worker to perform several work elements as the product passes through her workstation.

BAKERY'S BACKGROUND

Lyn Bakery is owned by a strong dedicated woman named Roslina Ahmad. The woman born in Lenggong, Perak is a very serious in creating her own path in pastry industry. She was studying in UITM Alor Gajah, Malacca in business management.

A year after starting a home based pasty business in 2008; Madam Roslina was decided to have her own bakery named as Lyn Bakery. Stated in the middle of a busy town in Section 7 Bandar Baru Bangi, Roslina stated a vision to have her own brand.

She trained herself in baking and pastry about three to four years to improve her baking skill. Based on her experiences, she finds out that the customer more prefer to continental flavoured cakes such as blueberry, blackforest and tiramisu.

Lyn Bakery’s product lines are biscuits, cakes and buns. Lyn Bakery also provides a café that have menu such as spaghetti, nasi lemak and so on

There are 15 types of buns (ex: garlic cheese bread, redbean bread), 7 types of cakes (ex: blueberry, blackforest, chocolate cake) and 20 types of cookies (ex: almond london, chocolate chip cookies)

INTRODUCTION TO FORECASTING

What is forecasting???

Based on Wikipedia, forecasting refer to the process of making statements about events whose actual outcomes (typically) have not yet been observed. A forecast also is a prediction of what will occur in the future. (Operation Management, 6^th, Russell&Taylor). J E Beasly in his notes said the definition of forecast is the estimation of the value of a variable (or set of variables) at some future point in time. So, in business, we can conclude that forecasting is about prediction about financial, operation and management in future.

John Galt had definite the process of forecasting as provides a mechanism for soliciting participation from individuals who have knowledge of future events and compiling it into a consistent format to develop a forecast. The forecasting process concentrates defining how information will be gathered and reconciled into a consistent picture of the future.

Apart from that, forecasting can be broadly considered as a method or a technique for estimating many future aspects of a business or other operation. There are numerous techniques that can be used to accomplish the goal of forecasting. For example, our sample is bakery which has been in business for 3 years can forecast its volume of sales in the coming year based on its experience over the 3-year period—such a forecasting technique bases the future forecast on the past data.

What is sales forecast??

Sales forecast is a forecast of a company's units and Ringgit Malaysia sales for some future period. It is generally based on recent sales trends and economic prospect which includes nation, region and industry.

For information, many forecasting techniques use historical data in the form of time series. A time series is simply a set of observations measured at successive points in time or over successive periods of time. Based on Russell and Taylor, time series is a forecasting method that use historical demand data over a period of time to predict future demand.
Before start the explanation about time series, let’s understand about behavior of time series in general terms. Times series are comprised of four separate components: trend component, cyclical component, seasonal component, and irregular component. These four components are viewed as providing specific values for the time series when combined. In time series concept, the measurements are taken at successive points or over successive periods. It means that the measurements may be taken every hour, day, week, month, or year, or at any other regular (or irregular) interval.

TIME SERIES FORECASTING USING SMOOTHING METHODS

Smoothing methods are appropriate when a time series displays no significant effects of trend, cyclical, or seasonal components (often called a stable time series). The goal is to smooth out the irregular component of the time series by using an averaging process.
The moving averages method is probably the most widely used smoothing technique. In order to smooth the time series, this method uses the average of a number of adjoining data points or periods. This averaging process uses overlapping observations to generate averages. It means that this method use an average demand for a fixed sequence of periods. Based on Russell and Taylor the moving average is good for stable demand with no pronounced behavioral patterns.
The term "moving" refers to the way averages are calculated—the forecaster moves up or down the time series to pick observations to calculate an average of a fixed number of observations.

The sample of calculation use moving average as follows:

Suppose a forecaster wants to forecast the sales volume for United Kingdom-made automobiles in the London for the next year. The sales of UK-made cars in the UK during the previous three years were: 1.3 million, 900,000, and 1.1 million (the most recent observation is reported first). The three-period moving average in this case is 1.1 million cars (that is: [(1.3 + 0.90 + 1.1)/3 = 1.1]). Based on the three-period moving averages, the forecast may predict that 1.1 million UK-made cars are most likely to be sold in the United Kingdom the next year.

Weighted moving averages are a variant of moving averages. In the moving average method , each observation of data receives the same weight. In the weighted moving averages method, different weights are assigned to the observations on data that are used in calculating the moving averages.

TIME SERIES FORECASTING USING TREND PROJECTION

This method uses the underlying long-term trend of a time series of data to forecast its future values. The time series data on U.S. auto sales can be plotted and examined visually. Most likely, the auto sales time series would display a gradual growth in the sales volume, despite the "up" and "down" movements from year to year. The trend may be linear (approximated by a straight line) or nonlinear (approximated by a curve or a nonlinear line). Assume that the time series on American-made auto sales is actually linear and thus it can be represented by a straight line. Mathematical techniques are used to find the straight line that most accurately represents the time series on auto sales. This line relates sales to different points over time

TIME SERIES FORECASTING USING TREND AND SEASONAL COMPONENTS.

This method is a variant of the trend projection method, making use of the seasonal component of a time series in addition to the trend component. This method removes the seasonal effect or the seasonal component from the time series. This step is often referred to as de-seasonalizing the time series.

Once a time series has been de-seasonalized it will have only a trend component. The trend projection method can then be employed to identify a straight line trend that represents the time series data well. Then, using this trend line, forecasts for future periods are generated. The final step under this method is to reincorporate the seasonal component of the time series (using what is known as the seasonal index) to adjust the forecasts based on trend alone

CAUSAL METHOD OF FORECASTING

Causal methods use the cause-and-effect relationship between the variable whose future values are being forecasted and other related variables or factors. The widely known causal method is called regression analysis, a statistical technique used to develop a mathematical model showing how a set of variables are related. This mathematical relationship can be used to generate forecasts. Regression analysis that uses two or more independent variables to forecast values of the dependent variable is called a multiple regression analysis.

*VIDEO ~ Example of cash flow forecasting for small business

INTRODUCTION TO INVENTORY

Inventory

The objective of inventory management has been to keep enough inventory to meet customer demand and also cost effective. However, inventory has not always been perceived as an area to control cost.

The high cost of inventory has motivated companies to focus on efficient supply chain management and quality management. They believe that inventory can be significantly reduced by reducing uncertainty at various points along the supply chain.

With efficient supply chain management, products or services are moved from one stage in the supply chain to the next according to a system of constant communication between customers and suppliers.

Inventory decisions are basically how much to order and when to order to replenish inventory to an optimal level.

Type of Inventory

· Raw Materials

· Purchased parts and supplies

· Work-in-process (partially completed) products (WIP)

· Items being transported

· Tools, and equipment

Two forms of Demand

· Dependent Demand à items are used internally to produce a final product

· Independent Demand à items are final products demanded by external customers

Inventory Cost

· Carrying Cost is the cost of holding an item in inventory.

Include the following items:

1) Facility Storage

2) Material handling

3) Labor

4) Record Keeping

5) Borrowing to purchase inventory

6) Product deterioration, spoilage, breakage, obsolescence, pilferage

· Ordering Costs is the cost of replenishing inventory

· Shortage Costs is the temporary or permanent loss of sales when demand cannot be met.

Inventory Control System

· Continuous Inventory System (fixed-order-quality) à a constant amount is ordered when inventory declines to a predetermined level.

· Periodic Inventory System (fixed-time-period) à an order is placed for a variable amount after a fixed passage of time.

· The ABC Classification System an inventory classification system in which a small percentage of (A) items account for most of the inventory value.

Economic Order Quantity Models

EOQ is the optimal order quantity that will minimize total inventory costs

Assumptions of EOQ model

1) Demand is known with certainty and is constant over time

2) No shortage are allowed

3) Lead time for the receipt of order is constant

4) The order quantity is received all at once

Order Cycle is the time between receipt of orders in an inventory cycle

EOQ is a continuous system.

Production Quantity Model is an inventory system in which an order is received gradually, as inventory is simultaneously being depleted

Quantity Discounts

A quantity discount is a price discount on an item if predetermined numbers of units are ordered.

INTRODUCTION TO CAPACITY AND FACILITIES

vAs demand grows a lead, lag,or average capacity strategy can be applied

vCapacity can be increased incrementally or in large steps

· Best operating level :Is the percent of capacity utilization that minimizes unit cost

· Capacity cushion :Is the percent of capacity held in reserve for unexpected occurences.

· Economic of scale :When it cost less per unit to produce high levels of output.

GROUP MEMBERS

Assalamualaikum and Hello,
For the first entry to this blog, we would like to introduce one by one of our group member. Hope all of the readers will enjoy while reading..happy reading all!!

Name : Rahazie Binti Mohamad Yunus

Hometown : Klang, Selangor

Majoring : Risk and Insurance Management

Matric No. : A123454

Age : 22 years old

DOB : 12 Feb 1989

Name : Nur Laila binti Norharmim @ Abd Halim

Hometown : Bagan Lalang, Sepang, Selangor.

Majoring : Organization Management

Matric No. : A122403

Age : 22 Years Old

DOB : 12 Nov 1989

Name : Nabila Hanani Alias

Hometown : Klang,Selangor

Majoring : Human Resource

Matric No. : A122507

Age : 22 years old

DOB : 31 Dec 1989

Name : Inna Nursyuhada Binti Rahman

Matric No. : A122817

Age:22years

DOB : 26 Nov 1989

Hometown : Bentong, Pahang

Majoring : Accounting

Name : Eizzaty binti Nawawi

Hometown : Shah Alam, Selangor

Majoring: Accounting

Matric No : A122944

Age : 22 years old

DOB: 10 March 1989

Name: Syazwanie Edania Suhairi (Nia)

Hometown : Sabak Bernam, Selangor

Majoring : Accounting

Matric No. : A122756

DOB:12 Nov 19**

Name: Arifah Haji Mokri

Hometown : Bandar Baru Bangi section 2

Majoring: Marketing

Matric No: A126433

Age: 24 Years Old

DOB : 5 Oct 1987