MT

1. Inventory
Management
Training
Training Material for Operations

2. 2
Objectives of Inventory
Management
 Reduce out-of-stock conditions and thus increase
sales/profits
 Improve Customer Satisfaction by providing a well-
stocked store
 Improve network ordering/forecasting skills
 Increase product inventory turns and reduce Cost Of
Inventory

3. 3
Goal of today’s training
“To provide all CVX sites with an easy to use
ordering tools that will help stores to ensure
proper stock levels to improve customer
satisfaction and sales”

4. 4
After this training, you will be able to . .
 Explain how out of stock’s impact customers and the
business
 Describe the benefit of using the ordering tools.
 Use the tools to ensure proper stock level in your stores.
 Adjust tools as needed to meet your store’s needs
 Educate your employees on how to use store ordering
guide.

5. 5
Financial Impact of Inventory
Management
Cost of Out Of Stocks
Global OOS Rate in Food Retailing= 8.3 % (All items)*
Promotional OOS Rate =17.1%*
Creates a 59% overall loss for retailers as consumers do the following:*
 Delay Purchase of desired item
 Buy missing item at a different store
 Do not purchase item at all
This results in an overall retail sales loss of 4%*
COST to CVX Annually: $34.8MM in sales, $10.4MM in GP $**
*Source: 2002 Retail OOS study by GMA and FMI Note that C-Store Specific is usually higher (10% US 2003 study)
** Source 2004 estimated COCO sales using April YTD sales of $289,630,000. GP Calculated at 30% of sales. All figures in US
Dollars

6. 6
Financial Impact of Inventory
Management
Cost Of Excessive Inventory
Excessive inventory occurs when proper inventory
management is not followed. Typically, stores will be
OOS on top selling items and over stocked on slower
moving items. Excessive inventory costs CVX $$:
$$ in labor costs required to move stock
$$ in inventory shortage as product is lost
$$ in holding costs via Cost of Inventory calculations
$$ in reduced Cash Flow to the corporation
An extra $10,000 in inventory per store will
cost CVX $288,000 in additional interest charges
annually.
* Based on 2003 COCO store count of 1442 and current cost of $ at 2% annually

7. 7
Understand Why You are Out Of Stock
Root Cause Flowchart
Item out of
stock On
Shelf
In back room
Not in back room
On order
Did not order
Not in
stock
In stock
Ordered but wrong
delivery
Ordered but
late delivery
Ordered after
vendor’s
deadline
Ordered but
not enough
Warehouse shortage
DSD vendor
shortage
 Drives
significant
sales loss
 Hurts our
reputation
and image
with
customers
 Means less
GP$ for site

8. 8
Root Cause of Out Of Stocks
0%
5%
10%
15%
20%
25%
30%
35%
Store
Forecasting
Store
Ordering
Store
Stocking
Warehousing
Management
Error
Mfg.
Availability
Global
USA
ROOT CAUSES OF OOS
(As ranked by occurrence)
Store Forecasting-35%
Store Stocking-25%
Management Error-14%
Store Ordering-13%
Warehousing error -10%
Manufacturer Avail-3%
Retailers should focus on
Store Forecasting first!
Source-Syncra Systems

9. 9
EACH ROOT CAUSE HAS A RESOLUTION
Item out of
stock On
Shelf
In back room
Not in
back room
On order
Did not
order
Not in
stock
In stock
Ordered but wrong
delivery
Ordered but
late delivery
Ordered after
supplier’s
deadline
Ordered but
not enough
Warehouse shortage
DSD supplier
shortage
•Communicate expectations with employees
•Check facings of product- is there an opportunity to expand
shelf storage? Feedback to CM on Process Thread 5.3
•Stock Shelves ASAP to insure no further sales loss
Communicate problem to
Supplier office and CM
Update Order Calendar
And attempt re-order
Adjust Build-Up to
A higher number
Communicate problem to
Supplier office and CM;
Adjust minimums up
Communicate problem to
Supplier office; adjust
Build To minimum upward
Order skipped by store
Product not in Build-up
Build up incorrect (minimums
Not sufficient)
Communicate problem to
Supplier Office and CM

10. LOW OUT-OF-STOCKS = MORE EFFICIENT SUPPLY CHAIN
Store/warehouse
Order on-time to Supplier
• Forecast right level of sales to order
• Track vendors delivery status
• Order from the designated supplier
• No Tolerance for Out Of Stocks!
• Store
• Display the items on shelf timely
• Always focus on Red Dot item availability
Supplier/warehouse
• Deliver on-time
• Deliver right quantity
• Plan routing efficiently
• Ensure price is competitive
• Help to track which stores not ordering
• Help Stores/Category Team with Future
Forecasting
Head quarters (Category Management Team)
• Has accurate information to negotiate with suppliers
- Volumes by store and network
- On-time delivery, service level (%)
- Provides competitive price to store
• Identify and update stores on key product to focus on (Red Dot Process)
• Track which store(s) not ordering from approved suppliers
• Track Scan rates at stores
• Make high level decision on warehouse, distribution partner selection
• Work collaboratively with suppliers to better sales forecasts
Store WH
Vendors
HQ
Data
Delivery
Order
Order Delivery
Delivery

11. 11
CONTENTS
Toolkit for Inventory
Management

12. 12
STORE DAILY ORDER AND DELIVERY CALENDAR
Instructions for Use
 Identify all suppliers that deliver to the store
 Place supplier name in left column of the calendar
 Identify order cut-off time and day of week to place order by
 Identify supplier delivery time and day of week
 Log the order and delivery time in appropriate day on calendar
 Ensure that each order is ready for transmission prior to cut-off time
Helpful Suggestions
 Add calendar to store’s computer to help track dates and tasks
 Print completed version of the calendar and post in the store
 Add specific responsibilities around ordering and receiving to
employees job assignments
 Business Consultants review calendar periodically with Manager

13. 13
STORE DAILY ORDER AND DELIVERY
CALENDAR
Example
Supplier
Name and
Contact
information
MON. TUES. WED. THUR. FRIDAY SAT. SUNDAY
Coca Cola
Bob-
62-1213-13
Order=2:pm Delivery
=10AM
Pepsi Cola
Name
Cell #
Order=5pm Deliver=2pm
Bread
Name
Cell #
O=5:PM
D=6:AM
O=5:PM
D=6:AM
O=5:PM
D=6:AM
O=5:PM
D=6:AM
O=5:PM
D=6:AM
O=5:PM
D=6:AM
O=5:PM
D=6:AM
Pastries
Name
Cell #
O=5pm O=5pm
Distribution
Warehouse
Name
Cell #
O=3pm D=7am

14. Order Calculation Sheet- Example 1

15. 15
FILLING ORDER CALCULATION SHEET
(1/2)
Data inputs
1. Vendor Code--specific code from SAP database
2. Vendor name- Billing name of supplier
3. Vendor contact name: Name of delivery or sales person
4. Phone #-Phone or cell number of vendor contact sales person
5. Order frequency: Weekly, biweekly or monthly (Add daily if app)
6. Order day: The day the order is placed
7. Delivery day: The day the order is delivered to store
8. SKU number: Bar code/POS code # of the product
9. Description: This usually includes manufacturer's name, product
description or name, pack size, product size, and container (e.g.,
Coke – Diet Coke 6 pack 250 ml can)
10.Pack size: Describe the order unit (Case of 4 “6 Packs”)

16. 16
FILLING ORDER CALCULATION SHEET
(2/2)
A
Data Inputs- continued
11. Required/needed inventory: The amount of product forecasted to meet the
sales demand and reduce or eliminate out-of-stocks. This number is also
referred to a the Build To or Build Up number.
 Calculated as sales per order cycle + safety stock
 Safety stock formula: to remain in stock usually 50% of the sales of
product during a given order cycle. Example: If sales of Marlboro light
soft pack is 100 per order cycle, the needed inventory is 100 + (50%+100) =
150 pack (or 8 cases of 20 pack)
 Need to be adjusted either up or down to meet current sales demand and
address seasonality- This should be done every 5 weeks to remain current.
B Working data – filled by store manager
12. On-hand: The amount of a particular product physically counted in the store (on
the shelf, in back room and on display). The count is done the same day the order
is placed, as close to order placement as possible.
13. Order: The amount of product ordered to maintain the needed inventory level, the
order quantity is calculated by subtracting the on-hand amount from the needed
inventory amount

17. 17
ORDER CALCULATION SHEET –
Example 2
Request minimum
level of each
SKU to relevant
Category
Manager
2
Update this column
every month,
adjust to
Holiday season
3 Calculate the
maximum
level (A+B)
4 Verify the
stock on
Hand
number
5
Refer to this
column
when
placing
the order
6
Calculate total
cycle for
the SKU in
your store
1
* Top items

18. 18
ORDER CALCULATION SHEET – HOW TO
COMPUTE ORDER QUANTITY
Weekly Sales
Report or
Order sheet
calculation
Stock
On-Hand
Report
Mon Order
Tues Lead Time = 3 days
Wed Deliver
Thur
Fri
Sat Days between
Sun Deliveries = 7 days
Mon Order
Tues
Wed Deliver
Thur
Fri
Sat
Sun
Based on
Planogram
And Display
Needs
= Max Level
Order
Quantity
=
Minimum
Qty
needed at
any time
+ [
Average
Sales per
day
x (
Lead
Time -
order to
delivery
+
Days
between
deliveries
+
Safety
Days
) ] -
Stock
On
hand
2 days

19. EXAMPLE OF ORDER CALCULATION SHEET
Order
Quantity
=
Minimum
Qty
needed at
any time
+ [
Average
Sales per
day
x (
Lead
Time -
order to
delivery
+
Days
between
deliveries
+
Safety
Days
) ] -
Stock
On
hand
quantity
11 days total (2+7+2)
Mon
Tues
Wed
Thurs
Fri
Sat
Sun
Mon
Tues
Wed
Thur
Fri
Sat
Sun
Order
Deliver
Order
Deliver
On hand
Start Sales Delivery Order
30
20
10
110
100
90
80
70
60
50
110
100
90
80
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
-10
100
60
Weekly Sales
70 can/week or
10/day
20
cans
30
cans
100 = (20+10/day*11days)-30
70= (20+10/day*11days)-70
Day
100
60

20. 20
ORDER CALCULATION SHEET –
SAFETY STOCK GUIDELINES
Why do we need safety stock
 Contingency
 Vendor delivers
late
 Vendor delivers
wrong amount
 Forecasting
 Sales volume is
greater than
expected
Suggested guidelines
Delivery
frequency
Safety day
level
Monthly
Bi-weekly
Weekly
Everyday
10
5-6
2-3
0
As a rule of thumb, safety stock for
top sellers is equal to 50% of
sales during one order cycle.