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CHAPTER II

LITERATURE REVIEW

2.1 Definition of Inventory

Chase and Aquilano (1995, pg 546) said “Inventory is the stock of any

item or resource used in organization. An Inventory system is the set of

policies and controls that monitors level of inventory and determines what

level should be maintained, when stock should be replenished, and how larger

order should be”.

Inventory has 3 frameworks to complete finish product such as raw

inventory frame work, stock in work process (process) framework, finish

good inventory framework According Arnold, Tony (2007), the component of

inventories includes:

1. Raw material: basic stock item or extracted material that company

made proceeds and transformed into component or products.

2. Components: Combination of Parts to using in building the finished

product.

3. Work in Process (WIP):Part of framework manufacturing that is still

in production process and the product has not complete yet and will

ready to transfer to finished goods inventory.

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4. Finished goods: Finished or completed products that will be

delivered to distributor or customers as product that ready to user or

consumption.

5. Distribution inventory: Finished or complete goods that are at

various points in the distribution system.

6. Maintenance, repair, and operation (MRO) inventory (often

called supplies) Item that are used in process to finish the product but

the items do not become part of complete or finished goods.

The inventory process flow with production management shall be as follows

Figure 2.1: Inventory in Manufacturing Firm

Source: adapted from Johnston, 1998, pg.51

Material Raw

Work in process

Work in process

Work in process

Finished good

Production

Supplier Customer

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2.2 Purpose of Inventory

Inventories are very important to control and manage due to efficient

cost and effective process for the company. According to Martinich (1997,

page659) said “inventories are expensive, they tie up financial resource that

could be used for other purposes and they incur ongoing cost of storage,

handling, taxes and spoilage.” He also mentions that inventories have sign of

more fundamental problems with the production system.

There are four purposes for a company to hold inventory such as:

1. Increase operating efficiency

Operating process can be improvement by spreading fixed cost of

procurement and decoupling of production. Spreading fixed cost has

example if the company buy a large quantity of raw material or

product can distribute fixed cost such as transport, shipping, packaging

and processing rather than buy little quantity of product. Decoupling

of production has means that product or goods that through a frame

work production process can still and should running continue to the

next processing even the previous processing has something occurs.

2. Provide quick response to customer

Quick response to customer is added value to the company by

providing the fast delivery, production and available product

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3. Provide safety against normal business uncertainties

Inventories can be used to reduce risk uncertainties of business such

as has something occurs in machine failures causing stoppages in

production process, delivery problem from supplier, and unexpected

demand from market.

4. Take advantage of unusual price opportunist or protect against

irregular business risks.

For instance, company predictions about increase of raw material

from supplier in short term. Therefore, the Company decides to

storage and buy a raw material with large quantity of lower cost

causing temporary increase in inventory to preventing the increase of

raw material in short term

2.3 Inventory Turnover

Regarding the problem in the increase of inventory turnover, due to

compete with competitor, we should understand about theory and concept of

Inventory Turnover. Inventory turnover is a measurement of how often the

company replaces and sells the inventory in the period. If the company can’t

sell inventory well then the inventory turnover will be low because of

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inventory will pile up at warehouse or contrary. It has to be observed closely

because of inventory turnover ratio is too high, the company is keeping too

little inventory. It will impact of lost profit because customer orders had to

wait until inventory arrived. This ratio should be compared against competitor

or industry averages. A high ratio its mean either ineffective buying or strong

sales. The ration to measure inventory turnover shall be as follow

COGS (cost of goods sold) could be substituted because sales and

inventories usually are recorded at market value, and at cost. Also, average

inventory could be replaced by ending inventory to minimize seasonal factors.

There are several thinks to concern when calculating Turnover ratio:

1. COGS should consider only from stock of sales that filled in

warehouse. Direct shipment and non-stock item are not included and

don’t involve into warehouse

2. COGS formula include transfer stock to the others branch and

quantities product when used for internal purpose

3. Inventory turnover based on cost per item not sales, also inventory

depend on the average of value stock inventory

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4. Average inventory is average inventory in 12 month, also cogs is

average from cogs in 12 month

5. Sales could be calculated from sales per year and Inventory could be

calculated from total inventory per years

Goal of inventory for the company are:

1. Calculate inventory turnover each product or every product line. It will

identify situations wherethe inventory does not provide a good return

on the investment and consider reducing the quantity you usually buys

from the supplier. Inventory turns will improve when you buy fewer

products, more often.

2. Inventory turnover ratio measure how quick inventory could through

the warehouse. Combined with other measurements, such as return on

investment and customer service level, inventory can provide an

accurate of the company success

3. Consider average of gross margin that company receives on the sale of

products. Almost all of distributors with 20 percent up to 30 percent

gross margins should achieve an overall turnover rate of five up to six

turns per year. Distributors with lower margins need higher stock

turnover. If the company has high gross margins, the company can

afford to turn the company inventory less often.

4. Decide turnover rate for fast and slow moving items, for instance a

turnover rate of five turns per year doesn't mean the stock turns

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fivetimes. For fast-moving items should turn more often (up to six

until eight times per year) and Slow moving items may turn twice per

years

2.4 Inventory Related Lead Time

Company viewed that having a lot of quantity inventory causing low

lead time would add cost of the company expenses and so in order to meet the

demand from the customer, Company should forecast the demand.

Fluctuations of the demand market make forecasting will useless. The bigger

lead time then the bigger also of degree confidence in forecasting. The graph

can be seen in Figure 2.2 inventory related with lead time, demand and

variable under uncertain condition. There are two perspectives to see lead of

time:

1. Customer Perspective

The time will be consumed from delivery order in this case when

customer was posting first order until final product

2. Supplier Perspective

The time will be consumed from delivery order until they receive the

cash

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Figure 2.2: Kinds of Inventory Under Condition of Uncertainly

Source: adapted from Johnston, 1998, pg.51

2.5 Inventory Control

Inventory Control is the supervision of storage, supply and

accessibility of items in order to ensure an adequate supply without exceeded

supply or over from demand and forecasting. It can also as internal control an

accounting procedure or system designed can also called Inventory controlling

system, the advantages are data integration, to promote efficiency, or

safeguard assets or avoid fraud and error etc. Inventory controlling system is

used for monitoring in or out of inventory, and write down transaction. Good

inventory control system using computerized (system) or manual have to

following the instruction (Zulfikarijah, 2005, p21-22):

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1. Calculating and Counting Transaction

Inventory system should record accountancy, note write down every

payment and acceptance and inventory management function.

Inventory accuracy has to be majored to avoid inaccurate inventory

data and order.

2. Arranging Inventory Decision

Inventory system can support decision when and how many raw

material or product should be ordered.

3. Reporting on Exception

Inventory system could automatic inventory storage in system, hence

exception will reported to management and could be as decision for

management, the report exception cover inaccurate forecasting,

running out of inventory, too big ordering in purchasing.

4. Forecasting

Decision of inventory and Inventory system can be relied on

forecasting request. There are some technique of forecasting can be

used as qualitative and also quantitative. Decision of inventory doesn’t

only depend and rely on marketing or inventory manager, but

quantitative technique can be included into the system.

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5. Top Management Report

Inventory system can be generated report to controlling and managing

quality of inventory. The report will measure entire stock and

performance of inventory and report to the management to decide the

next decision and making information to create inventory policy. The

report cover: inventory storage, inventory expenses and service of

storage.

2.6 Business Process

Process is begin with internal or external customer expectation and

needs about the product and is completed when the customer satisfied with the

process. According to Manganelli & Klein (1994) “A process is an

interrelated series of activities that convert business inputs into business

output“. According to Davenport & Short (1990) business process is “a set of

logically related tasks performed to achieve a defined business outcome”. The

customer in the process may not be the real customer of the company but

department within the company may be as customer to the other department,

for instance, sales department is customer of the logistic department which

logistic is providing product to send request of customer the company from

sales department. A process could be supporting process to the other process

in business process. Supporting process can process generated service,

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product and information for internal use such as sales and logistic process

assist customer need and expectation. Business processes enable to

reengineering or redesign if the process doesn’t bring value added to the

company and business.

2.7 Business Process Improvement with Six Sigma

Business Process Improvement is a systematic and technique approach

to help a company to optimize its underlying processes to achieve more

effective and efficient results. Before starting a business process

improvement; take a close look at how company will capture measurable

value .Based on (Bisson, Barbara; Folk, Valerie; Smith, Martin,2000.P 58-

63). One of tools to improve the business process is Six Sigma methodology.

Six Sigma is methodology that could improve quality of business process

output through identifying, reducing and removing error in existing business

process and manufacturing. Six Sigma was developed in Motorola in 1986

when Motorola got criticism about bad quality. Six Sigma became well

known in 1995 after Jack Welch use Six Sigma for his business at Generic

Electrical. Some of principal of Six Sigma based on (Pande, 2000,p.15) is:

26

Focus on Customer

Needs of customer is priority. System and strategy of business

should notice from customer opinion

Management based on fact and data

The effective measuring system could measure input, process

and output from time to time

Focus on process and improvement

Process in six sigma will documented, communicated, and

measured based on current condition. The Process will

improvement or redesign to keep with needs of business and

customer.

Proactive Management

Practical to anticipate of problem and change with existing fact

and data to get current target

Strong and wide collaboration

Cooperation between internal company with distributor and

customer in chain of business

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Trying to perfect but there is tolerance in failure

Giving free role to each employee to do some research for new

improvement, and risk management, it will get maximum

result related with customer.

Three strategy in implement of Six Sigma (Pande, 2000,p.31) is

Process Improvement

Strategy to define and improvement root of problem or the

strategy can be called continuous improvement.

Process redesign

Creating new design that wills suitable process with needs of

customer.

Management Process

Changing from focus and direction of view to understanding

the function and facilitation of processes that wills deliver

value to customers.

Six Sigma has 5 concepts or phase and the picture that can be seen in

Figure 2.3., the phase of Six Sigma is:

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Define

This step aims to define about needs of customer as standard

organization that have to be produced suitable with needs of

customers

Measure

This step aims to evaluate performance each process compared

with needs of customer that has defined

Analyze

This step aims to analyze cause of deviation from current data

and process

Improvement

This step aims to build an improvement and changes that

oriented on analyze process

Control

This step aims to do control for implementation from

improvement that have done for whole of business activity

company.

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Figure 2.3: The DMAIC Process

Source: www.valuebasedmanagement.net

Six Sigma could be implemented in business process of manufacturing

and service because of both of that area is related each other’s. Benefit of six

sigma will different in each company, as example case is for decrease cost,

improve productivity, decrease time of process goods, and develop product.

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2.8 Role of Technology Information in Manufacturing Industry

Information Technology has important roles in business process

improvement and innovating business process. Davenport (1993a, p. 1) said

that process innovation combines the adoption of a process view of the

business with the application of innovation to key processes.

One of Information technology used in manufacturing for business

process improvement is ERP. “Enterprise Resource Planning system is an

accounting oriented information system for identifying and Planning the

enterprise wide resource needed to take, make ships and account for customer

orders” (Heizer&Render, 2001,p.292). Purposes of ERP are:

1. Synchronize information in real time between all business department

inside company

2. Automation and effective in time

3. Data will integrate between physic and digital data

In this technology era, ERP as one of primary tools to support core

business, cut cost and time, reduce human error and accuracy data, where the

data accuracy is the one strategy issues especially in manufacturing industry.

ERP's scope usually does significant changes to staff work processes.

Implementation time depends on company and business size, number of

modules, department, and customization, the scope of business process and

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process changes, and the readiness of the employee of company to take

ownership for the project. Advantages and Benefit of ERP is:

1. Order Tracking

2. Sales forecasting

3. Revenue Tracking

4. Matching purchase order

5. Chronological history of every transaction

6. ERP can improve efficient and quality of business

7. ERP can be provided as decision making information for management

Based on Journal ERP Enabled Lean Six Sigma : A Holistic Approach

for Competitive Manufacturing (Nauhria, Yugal; Wadhwa, S; Pandey, Sunil.

Global Journal of Flexible Systems Management 10. 3 Jul-Sep 2009): 35-43

).The uncertainty of demand, lead times and inventory control in

manufacturing systems, presence of manufacturing wastes and lack of

systematic approach for solving customer specific problems and customer

satisfaction are the main concerns of competitive manufacturing. Uncertainty

caused by variation in demand and lead times together with lack of accurate

data and available inventory status leads to inefficient materials planning,

master production schedule, leads time and capacity planning. Enterprise

Resource Planning (ERP), Lean Manufacturing and Six Sigma are the three

different strategies concerns for competitive manufacturing. Six sigma

methodologies, DMAIC make improvement process data selected. ERP

32

ensures availability of reliable and accuracy data for six sigma DMAIC

improvement process, for supporting and facilitating six sigma analytical

capabilities and statistical process control.

Based on Journal ERP SELECTION USING EXPERT CHOICE

SOFTWARE (Oyku Alanbay Istanbul Bilgi University Kurtulusderesi Cad

No:47)ERPs are preferred because of their organization have wide

information sharing capability, component-based structure, complex business

process, real time and capability to be integrated with other systems to decide

the use of ERP is a complex and tough decision that have made by

management and has significant economic consequences, thus it requires a

multi-criterion approach. Analytic hierarchy process (AHP) is a method

widely used for this kind of complex decision-making problems. The criteria

could be seen in below description.

Figure 2.4 ERP Selection Based on Function and Purpose

Source:Journal ERP SELECTION USING EXPERT CHOICE SOFTWARE

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Based on result conclusion of journal

SAP better than Axapta in Expert choice software

Axapta better than SAP in end user perspective

SAP has same with Axapta in financial and product manager

2.9 Forecasting in Manufacturing Industry

Forecasting is measurement of prediction about future event.

Prediction is a similar, but more general term. Some forecasts are very high

level demand analysis. Based on (Chase and Jacob, 2010 ,pp 520-

548.).Forecast is much related with demand and time, illustrate in Figure 2.5

with type of forecasting time series. Where does the demand come from, and

how can a company to manage it? There are two basic demand, its dependent

demand and independent demand. Depend demand is demand for product

caused by the demand for other product. Independent Demand is demand

cannot be derived directly from other product. Some forecasts are used to help

company to set strategy of how, in an aggregate sense and will meet demand

and usual call strategic forecast. Forecasts are also needed for how firm doing

operation daily, for instance when should inventory for be replenished or how

much production should be produced on schedule next week. These are

tactical forecasts where the goal is to estimate demand in short term. Method

forecasting has 2 approaches, quantitative and qualitative. Qualitative

34

approach is subjective and is based on estimates and opinions. Quantitative

approach has casual method and time series method, this method is primary

focus of this thesis. A variety of forecasting methods are available for use

depending on the time frame of the forecast and the existence of patterns.

Statistical techniques that make use of historical data collected over a long

period of time. Methods assume that what has occurred in the past will

continue to occur in the future. Forecasts based on only one factor - time.

Time series have 4 component pattern, and the component pattern are Trend -

A long-term movement of the item being forecast, Random variations -

movements that are not predictable and follow no pattern, Cycle - A

movement, up or down, that repeats itself over a lengthy time span, its

illustrated in Figure 2.5

Figure 2.5 Time Series Component: (a) Trend; (b) Cycle; (c) Seasonal; (d) Trend

w/Season

Source: Introduction to Management Science, Ninth Edition,

Bernard W. Taylor III

35

Time series have 3 methods such as moving averages, weighted

moving averages, exponential smoothing. Time frame have 3 range, and there

are Short-range (one to two months), Medium-range (two months to one or

two years), Long-range (more than one or two years).The formula is

Moving averages:

Weight Moving Averages

WMAn =

Where iw = the weight for period i, between 0 % and 100 %

Exponential Smoothing Methods

Ft+1= αDt + (1 – α )Ft

where

Ft+1 = the forecast for the next period

Dt = actual demand in the present period

i periodin data average moving in the periods ofnumber

1

iDn

n

ni iD

nMA

36

Ft+1 = the forecast for the next period

Ft = the previously determined forecast

for the present period

a = a weighting factor referred to as the

smoothing constant

Mean Absolute Deviation

The mean absolute deviation (MAD) is one of the most popular and

simplest-to-use measures of forecast error. MAD is an average of the

difference between the forecast and actual demand, as computed by the

following formula:

Mean Absolute Deviation (MAD ) =Average of the sum of the

forecast error

Formula: MAD= (Sum |Dt - Ft|)

n

Where: t = the period number

Dt = the demand in period t

Ft = the forecast for period t

n = the total number of periods

| | = the absolute value

37

· The smaller/lower value of MAD, the more accurate the forecast

- One benefit of MAD is to compare the accuracy of several different

forecasting techniques

- MAD is the average, absolute difference between the forecast and

the demand.

Based on Journal Choosing a technological forecasting method

(Levary, Reuven R; Han, Dongchui. Industrial Management 37. 1 (Jan/Feb

1995): 14. ), Situation of Company will affect what should company choose

of technology forecasting method. Technological forecasting methods divided

by

Delphi Method

The Delphi method is a qualitative approach used in

forecasting method counting from timing of future events

Nominal group process

The nominal group process (GNP) is a qualitative forecasting

approach that uses a panel of experts like discussion and

interview to gain the information.

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Growth curve

A technology usually has stage include an initial adoption

stage, a growth stage, a maturity stage and a declining final

stage.

Trend Analysis

Trend analysis is a broad term that encompasses economic

forecasting models and techniques such as regression,

exponential smoothing and Box-Jenkins' ARINA model

Based on situation of independent factor, technology development of

PT MASA is at the middle stage, a moderate amount of low and medium

validity data is available, and the degree of uncertainty surrounding the

success of technological development is medium, exponential smoothing is

advised.

Based on Journal Three simple techniques for improving statistical

forecasts (Bernard, Paul.Production and Inventory Management Journal 38. 4

(Fourth Quarter 1997): 65-70.)Accurate forecasts enable a company to meet

its customer service, inventory turnover, and investment, manufacturing

utilization, operating cost, and other related targets.

39

Based on Journal COLLABORATIVE FORECASTING:

GOODYEAR TIRE & RUBBER COMPANY'S JOURNEY Miller, Steven D;

Liem, Krista M.The Journal of Business Forecasting Methods & Systems

23. 3 (Fall 2004): 23-27. Statistical forecasting techniques have long been

used to begin the process of negotiation between production planning and

marketing organizations. Goodyear has made large improvements in the

forecasting process, systems and accuracy. Forecasts were prepared 60 days

ahead, and were weighted by volume for computing average percent error (we

immediately experienced 20% improvement in our forecast accuracy,

weighted by volume through exponential smoothing technique .Good Year

replaced the linear regression models used for SKU level forecasts with single

exponential smoothing model. They also replace their system with SAP R2 as

ERP solution. Tremendous progress was made in forecasting efforts, reducing

forecasting error at a SKU level from 65% in 1993 to 31% in 2003.

Based on Journal Jain, Chaman L. The Journal of Business

Forecasting Methods & Systems, suppl. Benchmarking Forecasting Practices

21. 3 (Fall 2002): 12-17, company should improve their forecast but also the

process itself. Company should benchmarking their own company against the

industry to see whatever their company still in below, at par or above the

industry. Based on survey of Journal on 2007, average of forecast error is 15

% with one month forecast. As result, can be seen in Figure 2.6

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Figure 2.6 Category Level Forecast Errors

Source:Journal Benchmarking Forecasting Process

2.10 Plan Location and Layout

At tire industry, plan location and layout are one of the important

things that it can be Influence Company’s inventory turnover. Facility layout

refers to the arrangement of activities, processes, departments, workstations,

storage areas, aisles and common areas within an existing or proposed facility.

Layout has two kinds basic are:

Process layouts, also known as functional layouts, group

similar activities together in department or work centers

according to the process or function they perform.

41

Product layouts, better known assembly lines, arrange

activities in a line according to the sequence of operations that

need to be performed to assemble a particular product.

Managing the supply network is all about understanding demand and

cost drivers to manage tradeoffs, constraints and time. By focusing on daily

forecasting for each SKU and location and optimizing material flow and

processes across the entire supply network, companies can implement

strategies for operations excellence that leverage their competitive advantages

for profitable growth and increased shareholder value.

Based on Journal Strategic logistics decision making Wanke, Peter F;

Zinn, Walter. International Journal of Physical Distribution & Logistics

Management34. 6 (2004): 466-478.Decentralized inventory affect by variable

and it is cost density, coefficient of variation of sales, inventory turnover and

delivery time. The lower the cost density, the higher the pressure to keep

transportation unit costs low (Amstel and Amstel, 1985). Freight

consolidation, which spreads transportation fixed costs, can be achieved

through inventory decentralization (Carter and Ferrin, 1996). The impact of

freight consolidation on the time interval between two consecutive

replenishments, and therefore on inventory turnover, should also be

considered (Jayaraman, 1998). Inventory turnover tends to be lower if freights

are consolidated. On the other hand, higher inventory turnover could lead to

42

inventory decentralization since it indicates that the replenishment is attuned

to demand variation. Shorter delivery times could also lead to inventory

decentralization if the transportation mode remains the same (Bowersox and

Closs, 1996). The coefficient of variation of sales impacts on inventory

centralization decisions.

Based on Journal The impact of routing and storage policies on

warehouse efficiency(Petersen, Charles G, II. International Journal of

Operations & Production Management 19. 10 (1999): 1053-1064),to

improve effectiveness of plant lay out warehouse, they have 2 point and they

are storage policy performance and the routing. This journal will evaluate

routing heuristic and an optimal routine based on volume-based and random

storage environment; compare the performance of volume-based storage to

random storage; and examine the impact of speed of picking rates on routing

and storage policy performance. Storage policies based on volume based

storage, usually high volume items storage location closed to the p/d point,

because the demand is known with certainly. The advantages of volume based

storages are the reduction distance and time travel. The disadvantages of

volume based are an unbalanced utilization of the warehouse and aisle

congestion. Random storages is different approach from volume based

storage, random storages assigned a single location for the entire planning

location. The advantages are reduced aisle congestion and the uniform

utilization of the warehouse. The disadvantage is longer travel times from

43

having to traverse the entire warehouse. Routing policies determine the route

of a picker for a picking tour, specifically the sequence in which items are to

be picked.

Based on Journal improving order-picking performance through the

implementation of class-based storage (Petersen, Chales G; Aase, Gerald R;

Heiser, Daniel R. International Journal of Physical Distribution &

Logistics Management 34. 7/8 (2004): 534-544.), We get effective

warehouse layout from Class bases storage (CBS) and can be seen in Figure

2.7, Class-based storage (CBS) into storage classes by randomly and demand

assigns storage locations within each storage class area.

Figure 2.7 Example of Lay out CBS

Source:Journal of Physical Distribution & Logistics Management

44

The effectiveness to reengineering and improve of facility plant layout

can be seen in journal Improving Order-Picking Response Time at Ankor's

Warehouse(Dekker, R; M B M de Koster; Roodbergen, K J; H van Kalleveen.

Interfaces 34. 4 (Jul/Aug 2004): 303-313.) Because of policy storage

assignment and routing for Ankor situation, the effective cut the average route

length in the order-picking operation by 31 percent and reduction in the

number of order pickers of more than 25 percent.

2.11 Consistency Lead Time

Plant Location will be affected the delivery performance to

distributor.Consistency Lead time order to fulfill request of distributor is

important if PT. MASA doesn’t want to lose of the customer. Based on

inventory matrix for delivery performance,

1. Benchmarking Fill rates

Benchmarking fill rates for delivery SLA in one year is 96 %

until 100 %.

2. Order entry lead time

Measures the time taken to take customer order is one day or

less (If have online ordering)

45

3. Order entry accuracy

Measures the accuracy with which a customer order is

maintained in a database. The benchmark of human error is set

at about 0.1%

2.12 Human Resource

Based on Journal the Impact of Lean practice on inventory turnover by

Snell, Scott A; Dean, James W, Jr. Academy of Management (Aug 1992)

Inventory turnover is a ratio that many organizations strive to optimize. High

turnover in a company affected by capital in raw materials (RM), work-in-

process (WIP) or finished goods (FG).Goals of LM (Lean Manufacture) is to

reduce excess inventories as a form of waste, as well as reduces

overproduction.

There are four factor generally used in LM, which include Just in

Time (JIT), total quality management (TQM), total productive maintenance

(TPM) and human resource management (HRM), (Demeter, 2011, p. 156).

TQM, TPM, and JIT all share similar goals such as continuous improvement

and waste reduction, and it has been known from previous studies that

implementing joint application of bundles such as JIT and TQM increase

quality standards and productivity more than one of these alone. It is also

known that bundling HR practices with any of these manufacturing practices

leads to a better performance, (Demeter, 2011, p. 156).

46

Figure 2.8 Lean Manufacturing Factors

Source: The Impact of Lean Practice on Inventory Turnover

Human Resource management practices are the primary means by

which firms invest in their employees (cf. Cascio, 1991). Different

characteristics of human resource management practices reflect different

levels of investment in human capital. Based on case above,Hypothesis based

on Journal Integrated Manufacturing and Human Resource Management: A

Human Capital Perspective (Snell, Scott A; Dean, James W, Jr. Academy of

Management Journal35. 3 (Aug 1992): 467), Journal the Impact of Lean

practice on inventory turnover has hypothesis regarding human resource, they

diversification regarding selective staff, training staff, appraisal and reward.

The results of Hypothesis are:

The interactive effects of integrated manufacturing practices (AMT, JIT,

TQ) are positively related to theselectiveness of staffing

47

The interactive effects of integrated manufacturing practices (AMT, JIT,

TQ) are positively related to the comprehensiveness of training

Facets of integrated manufacturing (AMT, JIT, TQ) are positively related

to developmental performance appraisal.

Facets of integrated manufacturing (AMT, JIT, TQ) are positively related

to externally equitable rewards.

2.13 Distribution Channel

Based on Journal Distribution deluxe: Canadian Tire’s showcase

distribution centre delivers the goods (Material Management and Distribution

38. 10 (Oct 1993): 59-60), Monitors the distribution center and the product it

contains with help from a sophisticated inventory forecasting model, an IBM

mainframe software package called Inform II. It tracks regular merchandise,

generating orders with the appropriate lead time for the company's various

suppliers. But within the corporation it is nevertheless only part of a far

reaching logistics project that has a staff of 30, including several senior level

managers, committed full time to lowering the total enterprise cost of getting

products from source to consumer. Strategies include a variety of programs

designedin conjunction with vendors and dealers to reduce collective

inventory and lead times, and improve service quality.

48

For example, the forging of strategic alliances will permit

Canadiantireto share retail information with preferred vendors, helping

vendors schedule production to actual consumer demand. For high - activity

products, this will allow vendors to prepare shipment that meet store

requirements, and either ship direct to stores, or schedule orders into the

distribution centers to mesh with shipping schedules and thus facilitate trans-

shipment of the goods.

Management sees no serious conflict in fielding one team to build a

mega distribution center and another team charged with circumventing the

distribution center altogether. By common agreement, the ultimate goal is to

get product on the sales floor at the lowest possible cost. The distribution

center should be seen as a dynamic resource, rather than a static building with

fixed equipment.

Buyers and logistics managers have had great success prodding

vendors to put UPC bar codes on merchandise. The small cost of

incorporating bar codes in consumer package artwork, or of applying them at

the point of manufacture, generates enormous savings at the distribution

centers and the stores.

The logistics team has also examined in - store operations with a view

to getting more merchandise out where the customer can buy it, while using

less labor to get it there, and still maintaining a pleasant shopping

49

environment. One result is the placement of product above product displays

inthe store. This can reduce the size of stockrooms, and puts product where

the customer can see it.