PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY

Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418

Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
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STRATEGIC BUSINESS ANALYSIS Chapter 7:

Supply Chain and Inventory Department

Strategies and Analysis

Table of Contents
 Introduction to Supply Chain and Inventory Management
 Product Movement Analysis
 Product Shelf Life
 Economic Order Quantity and Lead Time Analysis
 Warehouse, Store, and Office Inventory, Management-Supplies and Fixed Asset
 Product Cost Analysis
 Distribution Analysis

Learning Objectives:
1. Define the strategies in the supply chain and inventory department
2. Interpret the analysis of supply chain and inventory strategies.
3. Formulate decision-making in relation to supply chain and inventory management.

INTRODUCTION
Supply Chain
 Supply chain is the process of production and distribution of products.
 Supply chain is an entire system of producing and delivering a product service,
from the very beginning stage of sourcing the raw materials to the final delivery
of the product or service to end-users.
 The supply chain lays out all aspects of the production process, including the
activities involved at each stage, information that is being communicated, natural
resources that are transformed into useful materials, human resources, and
other components that go into the finished product or service.
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
Philippine Association of Maritime Institutions (PAMI)

Supply Chain Process

1. Planning involves the alignment of strategic plans and demand planning.
*process of planning the flow of goods from raw materials to the final sale of a
product.
*can be demand planning, production planning, supply planning, and sales and
operation planning.
2. Procurement is purchasing of raw materials, supplies, tools, technology, and
equipment that will be used during the production.
*procurement support’s business needs.
3. Production is the period of processing raw materials with the use of other
resources maneuvered by machines and men while converting them into
finished goods.
*consists of the product design, production, testing, packing and delivery.
*provides companies with essential data for determining quality levels, productivity,
and production output.
4. Warehousing is the process of storing and handling the goods ready for
distribution.
*serves as a link between production and distribution.

5. Customer Order is filling the customer's request to buy the product.

*maybe ordered through channels such as distribution to branches, wholesaler, and
retailers.
6. Delivery is the process of transporting of goods to the recipient of products.
*logistics phase, happens once orders are accepted.

Inventory Management
 Inventory management is the system of ordering, storing, counting, and auditing
of inventory like goods, equipment, machine, tools, and supplies.
*controls all stock within a company.
*prevents surplus and shortages which protects a company against an unforeseen
changes in customer demand or supplier delays.
 Good inventory practices establish protection of assets, and product takeoff.
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
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Product Movement Analysis

*Product serves as medium of exchange between the buyer and the seller. They
provide the reason for business by way of selling it and make profit from it.
Product Movement Analysis (PMA) is the process of instigating the classification of
product performance in relation to offtake.
Classifications of PMA:
i. Fast Moving (High Performer) - product offtake is is fast. Attaining set target is
met.
ii. Average Moving (In the middle) - product offtake is moving but not attaining
the set target.
iii. Slow Moving (Non-Performer) - low offtake performance of products. Inventory
is high but without or minimal movement.

Product Shelf Life

Product shelf life has an important role in identifying the classification of product
movement. Product shelf life is the period that preserves the quality and other
expected attributes of products. The shelf life is in accordance to the standard of the
company and degradation of goods. For example, garments that were stocked and
displayed for more than six months at a boutique or department store are considered
as slow-moving items. In the supermarket, canned goods which will expire three
months prior to the expiration date are also considered as slow-moving performer.
Fast-moving SKU could be the best seller products. Most of the companies’ best
sellers are depleted faster than other products that they have. Fast moving item shall
also apply the “Pareto Principle of 80/20” which correlates to the 20% of top seller
products representing the components of 80% share of sales.
Fast food chains use several kinds of equipment like the “warmer”. The warmer is
where the cooked food stays for a couple of minutes before it is dispatched and
served to customers as product order. The cooked food in the warmer should stay
only for a couple of minutes based on the standard operating procedure and
guidelines of the company. If the cooked food overstays in the warmer, it is labeled
as a lapsed product. The lapsed product must not be served to the customers
because it is considered reject. When lapsed products. Are served to the customers,
the worse scenario can be the increase of unwanted costs. That is why, the manager
and product quality controller should make sound judgment from time to time to
avoid wastages.
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Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
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On the other hand, expiration date has relevance to product shelf life. Expiration
date is the period that shows until when the product should be consumed or used
prior to is the period that toon date is determined by the manufacturer of the product.
Once the product expire, it is considered as spoiled or substandard. The expired
product should not be sold to the customers for safety reason.

Ways to avoid expiration of products and maximize attaining the product shelf
life
1. Store the products properly using FIFO (first in, first out), FEFO (first expired,
first out), and LILO (last in, last out). The capacity will be based on the
periodic usage and demand of customers.
2. Use visual aid such as signages which will remind the employee about the
shelf life of products.
3. Use monitoring form for the product shelf life.
4. Use monitoring form for the expiration date. The list should indicate the SKU
and its expiration date.
5. Display the product properly by applying strategic visual merchandise display.
6. Conduct suggestive selling or sales talk of nearly expired items. Note: The
product should be consumed prior to the expiration date..
7. Conduct sales promotion like discounting, bundling promo, freebies,
incentives, and the likes.
8. Forecast the product production and procurement based on supply production,
demand of customers, and reality of business.
9. Set alignment of target in production, marketing, finance, logistics, and
operation that address the production units and quantity to sell.
10. Handle the product properly to avoid deformities that may affect the condition,
quality And performance of goods.
11. Regularly update the sellers through meeting and setting individual or team
quota.

Economic Order Quantity and Lead Time Analysis

The economic order quantity (EOQ) refers to the ideal order quantity a company
should purchase in order to minimize its inventory costs, such as holding costs,
shortage costs, and order costs.
*only one product is involved (SKU)
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Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
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Lead time is the amount of time that passes from the start of a process until its
conclusion. Ordering-Lead time analysis varies depending on the situation. The
ordering activity will be controlled using Inventory Control Objective (ICO).
Inventory Control Objective is the mechanism of justifying the forecasting of order.
ICO fills the needed quantity that will be used in operating business and selling
products. ICO varies according to the standard of the company.

Some of the activities used in filling the product in the warehouse,stockroom, and
selling area are the following:
Restock - fill up of goods in the stock room and warehouse.
Reorder - repurchase of goods and supplies.
Replenishment - the restoration of goods in the selling display area.
Refill - filling again or replacement of goods in liquid form.

Warehouse, Store, and Office:

Inventory Management – Supplies & Fixed Asset
“Right quantity at right place at right time”, Inventory takes as the current value of the
company. Inventory management is the control of inventory form ordering, storing,
and depleting. Inventory management takes place anywhere in the organization.
Inventory management concedes in the economic activity. Here is the inventory
management in different arsenal of an organization. Inventory may control resources
of an organization such as raw materials, products, and components that are stored
in the company’s vicinity.

Distribution Channel Methods of Inventory Inventory Lifecycle

Management/Practices
Factory/Production Area Physical counting of raw Inventory Lifecycle
materials, supplies, tools,
machines, equipment, Reorder Level
property, and other
physical assets. Safety Stock

Using "register list" for all Inventory Budget

 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
Philippine Association of Maritime Institutions (PAMI)

resources.
Just in Time Inventory Automatic Inventory
System
Safety Stock Inventory
Lean Manufacturing Inventory Turnover

Six Sigma
Warehouse Physical counting of Reorder Level
finished goods, supplies,
tools, equipment, property, Safety Stock Inventory
and other physical assets. Budget

Using "register list" for all Automatic Inventory

resources. Safety Stock
Inventory System Inventory
Batch Tracking Turnover
Lean Manufacturing
ABC Analysis
FIFO
LIFO
Six Sigma

Office Economic Order Quantity Reorder Level

Minimum Order Quantity Safety Stock Inventory
ABC Analysis Budget
FIFO Automatic Inventory
LIFO Maintaining Reorder System
Level Inventory Turnover
Six Sigma
Consignment Inventory
Demand Forecasting
Stock Keeping Unit (SKU)
Management
Store/Branch/Outlet Physical counting of raw Reorder Level
materials, supplies, tools, Safety Stock
machines, equipment, Inventory Budget
property, and other Automatic Inventory
physical assets. System Inventory
Turnover
Using "register list" for all
resources.
ABC Analysis
FIFO
LIFO Drop Shipping
Maintaining Reorder Level
Perpetual Inventory
Demand Forecasting
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Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
Philippine Association of Maritime Institutions (PAMI)

Stock Keeping Unit (SKU)

Management
Consignment Inventory

Table: Inventory Management

Terminology
ABC Analysis – a sorting technique depending on what is asked for the thing and
the costs that will be the reason to hold the particular stock. A- fastmoving items. B-
regular demand of customers. C-Slowing Moving items.
Automatic Inventory System -system used to monitor merchandise price, quantity,
and other Needed information pertaining to SKU.
Batch tracking - Process to order items in batch and monitor through batch number.
Consignment Inventory - Products are pushed and sold by the vendee and then
pay the vendor after selling.
Demand Forecasting - Forecasting of customers behavior in relation to demand.
Drop shipping - Is offer and transport of items, that are not one or the other owned
nor supplied.
Economic order quantity - Is the smallest entirety of stock that got to be asked for
get together to beat client demands without running out of stock or Making out of
date stock.
Inventory Budget - Financial amount of inventory in specific location.
Inventory turnover - The depletion of inventory based on speediness.
Just in time inventory - Required product availability and inventory in a given time.
It is Also known as zero inventory.
Lean Manufacturing - Process of producing products with maximum productivity
and minimum wastages.
Minimum order quantity - Is the slightest set sum of stock that a provider is ready
to offer.
Perpetual inventory - Tracking of inventory as a core system.
Reorder level - The level to order items to sell.
Risk register - Tool used in identifying risks of an asset.
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Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
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Safety stocks - Additional number of stocks in order to avoid unavailability of

Merchandise. Security stocks - Is keeping little sum of stock as protection against
the Inconstancy of the item in advertised request.
Six sigma - Process to eliminate defective products.
Stock keeping unit management - Monitoring, replenishment, refilling, and
calculation of profit and margin

Product Cost Analysis

*Numbers is the game in production, so we need a good mathematical skills and a
balance decision making.
Productivity Cost Analysis (PCA) is the study of making outputs to become profitable
by providing accurate quantity of production.

Elements of PCA:
*by achieving these elements, the expected outcome will be “profitable” in nature.
i. Right Costing
*the accurate computation of costing of products such as goods, services, taxes, and
expenses.
ii. Feasible Sales
*the realistic attainment of sales.
iii. Right Pricing
*setting the price in a balance way that will benefit the company and customers.
iv. Right Quantity
*assuring correct quantity of products to produce/fabricate.

Product Cost Formula:

DIRECT LABOR XX

OVERHEAD MANUFACTURING COST XX

RAW MATERIALS XX

PRODUCTION COST XX
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Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
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Direct labor:
 Salaries
 Wages
 Worker’s benefits
Overhead:
 Rent
 Insurance
 Utilities
 Maintenance
 Depreciation

Distribution Channel and Placement Analysis

A distribution channel refers to the path a product takes from the manufacturer to the
consumer. It involves various intermediaries, including wholesalers and retailers,
ensuring the product reaches the right place.
“The right place is home sweet home!” Figuratively speaking, proper distribution of
products in the right channel is one of the factors that will make the business
successful. Distribution channel is the allocation of goods in an ideal place.
Distribution channels. Include manufacturer, wholesales, retailer, and consumer. Now,
infusing the technological platform nowadays; the internet, may be included.

Manufacturer is the factory or producer of products. More often, branding of

products. Originates from the manufacturer.
Wholesaler is the buyer of products that are voluminous in quantity. If a company
has an exclusive distribution agreement with the manufacturer, it will solely sell in a
specific area. Some nature is also in the form of wholesaling like when a small
business ordered several batches of products.
Retailer is the distributor who sells products of pres. The retailer frequently buys
their products to the customers by retail units or pie (in case-to-case basis).
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
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Consumer is the ultimate goal from the whole the as stop of product travel until it is
consumed. Consumers are either buyers or users of product.

Aside from using telephone, text, and fax machine, digital platform using internet is
already in the scenario of transporting products from channels to customers. The
influence of technology has immersed into societal transformation, from normal to
new normal set up. The presence of courier businesses addresses the needs of
customers to transport the goods from the distribution channel directly to their
doorsteps. Some companies have their own transportation delivery. The infusion of
channels, courier, and technology creates instant delivery to customers without
leaving their houses and hassle free.
Placement analysis is the study of knowing the right decision for business to whom
and where they are going to place their products. Subsequently, placement analysis
is associated to the distribution channel. The inclusion of criteria in determining the
right decision for placing the products and other related concerns will deter risks and
prevent wrong losses in the future. Placement analysis also brings actual checking of
performance. Of internal and external environment as part of scanning process.
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
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Here is an example of Placement Analysis of a branch.

Distribution Channel Pricing and Analysis

Setting the right pricing for different distribution channels (manufacturer, wholesaler,
retailer, and customer) is crucial for profitability. The pricing structure includes the
Manufacturer’s Retail Price (MRP), Wholesaler’s Price (WP), and Retailer’s Price
(RP), each involving markups to cover costs, expenses, and profit.

Suggested Retail Price SRP is a price recommended by the manufacturer for retail
sale. However, due to various factors like distribution costs, it may not always be
followed. Misunderstandings can arise when customers expect uniform pricing
across all sellers.
There is a story of one retail store that sells a certain product for 20 pesos while the
SRP is 12 pesos. The customer approached the seller, and said that the SRP is 12
pesos as aired on the television. The witty seller told the customer to buy the product
through television. Aside from poor customer service because of the seller’s
discouraging concept, the moral of the story is not to engage in deceptive pricing.
Some customers may know the SRP concept while others are not knowledgeable
about its assumptions.
In order to resolve the confusion, setting the right price for distribution channels until
product bought by the customers should be diligently planned and implemented by
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
Philippine Association of Maritime Institutions (PAMI)

product businesses. A prudent approach in setting prices should prevail so that every
stakeholder in the business will be happy yet profitable.
One of the challenges in setting the price is that the manufacturer cannot dictate
the wholesaler and retailer in setting their selling price to their respective
customers. The manufacturer may present a proposal and offer it to entice the
wholesaler to buy more.
Channel pricing analysis is the assessment of the price set by the channels. The
goal is for the channel to balance profit and for the customers to accept the price.
The sustainability of the business lies in the implementation of strategy. Pricing has
the most vital role in encouraging the target market to buy the goods or services
offered. Nevertheless, if channels cannot set the right price, it is considered as
pointing forward to loss of opportunity to sell.

Manufacturer’s Retail Price (MRP) usually informs the customer about the SRP.
MRP is offered to wholesalers or retailers depending on the agreement. The
customers of manufacturer are B2B (Business to Business). The price structure in
MRP is lower because of the wholesaler’s volume orders. Another strategy of
lessening is through discounting. In Wholesaler’s Price (WP), the price released to
the retailers has a mark-up to cover cost, expenses, and attain profit.

The Retailer’s Price (RP) is the released price of the retailer and bought by
customers and consumers. RP also has added mark up from the wholesaler price to
cover up cost, expenses, and profit. So, how would the right price be set so that a
product will be saleable or create demand among customers regardless with or
without SRP? “Here is an example of Price Channel Structure with action plan. The
manufacturer’s goal is to have SRP of 20 pesos.
 PHILIPPINE COLLEGE OF SCIENCE AND TECHNOLOGY
Old Nalsian Road, Nalsian, Calasiao, Pangasinan, Philippines 2418
Tel. No. (075)522-8032/Fax No. (075)523-0894/Website:www.philcst.edu.ph
ISO 9001:2015 CERTIFIED, Member: Philippine Association of Colleges and Universities (PACU),
Philippine Association of Maritime Institutions (PAMI)

After all, business is all about strategic targeting of customers while the ultimate goal
is until the customers consume the products with acceptable pricing that different
distribution channels patronize. Pricing could make or break the future of the
business. The management and its channels must be prudent in setting price. Doing
research like focus group discussion, depth interview, and survey may be used as
tools to get feedback from the respondents which include the channels and end user
(customers).

Reference:
https://www.scribd.com/document/723484244/Chapter-7-Supply-Chain-and-
Inventory-Department-Strategies-and-Analysis