A system study on the warehousing and ordering operations department of ABC Company

ABC Company is a distribution company that imports products from suppliers abroad to sell locally to restaurants and supermarkets in the Philippines. They distribute a wide variety of products ranging from dry, chilled, and frozen goods. The company is currently one of the leading distributors of imported dry and frozen products in the Philippines, so it is important for them that their processes move without a hitch or any drawbacks. After documenting the processes in the warehousing and ordering system of the company, a SWOT analysis was done in order to identify possible problems existing within the current system, as well as point out potential points of improvement. After which, a WOT-SUG analysis was done in order to rank and prioritize the issues and problems found in the SWOT analysis. The problem that ranked the highest was the cost incurred due to the expiry of goods that deviated from the allowable amount of 1 million pesos by Php1,481,012.78, incurring a total cost of Php2,481,012.78 totaling 47,739 units of expired goods in the year 2017. This was considered as the problem statement of the study. A why-why diagram was then constructed to conduct a root-cause analysis in order to identify the root causes that are influencing the problem specified. This was done by conducting several interviews regarding the processes involved, research, as well as extensive data analysis to identify patterns in the data. The root causes have been identified to be: 1) manual counting of inventory levels, 2) demand used for forecast came from recent months i.e., native forecasting, 3) retrieval policy requires products to be checked for expiration only, and 4) products are transported to storage without location tags. After which, alternative solutions were constructed to solve each root cause, followed by a Kepner-Tregoe Decision Analysis in order to identify which alternative solutions are to be selected and implemented. The proposed solution for the problem would be to change the current ordering system of the company. This would be done by implementing the EOQ method, which also considers quantity discounts, in determining the optimal amount of products the company needs to order with the lowest possible cost. To get an accurate forecast of the demand, the Weighted Average Forecasting method, with an MAD of 4276.95 and MSE of 5677.96, was chosen which will be used as an input for the EOQ method. Solutions generated for the company were assumed to have a maximum effectiveness of 80% which leaves around 20% to account for human error as it is uncontrollable. Using this information, the proposed solutions would be able to reduce expired costs by Php1,984,910.22 annually. Based on the cost benefit analysis done, the payback period of the proposed system would be 0.026 years or 9.36 days