Operations Management

Project
Report on Inventory Management at
Paris Bakery

Submitted to:

Submitted By:

Mr. Manimay Ghosh

Group 2
Group members
Aditi Sahu
Prajakta Chavan
Akansha Jain
Krishna Kumari Sahoo
Sathamchetty Balachander
Sourabh Ranjan Khuntia

Roll No.
UM14006
UM14021
UM14027
UM14029
UM14049
UM14055

ACKNOWLEDGEMENT
It gives us immense pleasure to express our sincere thanks to all those who helped us
in the compilation of this project to study the inventory management in a bakery shop- Paris
Bakery. First of all, we would like to thank our Operations Management II faculty, Prof.
Manimay Ghosh who gave us the opportunity to conduct this study and for his constant
guidance & support throughout.
We would also like to thank Mr. Sudhir Yadav, Manager at Paris Bakery, Jaydev Vihar
for providing us with information about the inventory and procurement practices in his
organisation.

Table of Contents
Introduction.........................................................................................................1
Business Layout.................................................................................................1
Inventory..............................................................................................................1
Inventory Cost...................................................................................................2
Level of inventory..............................................................................................3
Inventory control Techniques............................................................................4
ABC analysis.....................................................................................................4
VED analysis.....................................................................................................6
FSN analysis......................................................................................................6
First In First Out................................................................................................6
Inventory Turnove.............................................................................................6
Issues Faced in the Outlet and Factory............................................................6
Recommendations & Conclusion......................................................................6

Introduction:
Paris Bakery has been started in the city of Bhubaneswar to provide an entire range of
bakery products under one roof. The shop has ultra manufacturing facility and state of the art
technology. From its inception, it has been able to position itself as a bakery shop providing a
variety of vegetarian products. The products range from muffin, rusk, dry cake, gujhiya and
puff, cakes, pastries, pudding, tarts and mousse, chocolate, bread, bun, Crossants and
khulcha, loaf and pizza base, cookies. Thus one has numerous options inside a Paris Bakery.
The stores at Jaydev Vihar and Shaheed Nagar are franchisee stores. They have
constantly going for expansion of their stores. Another store will now be functioning from
Cuttack. They have a presence on social media and have an online system of ordering various
products available in their stores. Thus it wants its customers to be able to enjoy the various
services at their convenience.

Business Layout:

Example of a Baking process:

Inventory:
Inventory is the stock of items that is held by the organization to meet demands. It
ensures that there are no shortages or overstocking of the raw materials or the finished
products. An inventory system is the set of policies and controls that monitor levels of
inventory and determines the level it should maintain, and when the stock should be
replenished, and how large the orders should be. Keeping high levels of inventory would

mean increase in the production costs and having low inventory carries a risk of shortages
during production and hence facing stock outs.
Inventory comprises of the following things.

Raw materials: Raw materials are required to carry out production activities

uninterruptedly. Raw material in bakery factory includes grocery items such as whole
wheat, Maida flour, food color, flavor oil, salt, sugar etc., which they order in
wholesale and perishable items such as fruits, yeast, egg, milk etc. that are bought on
daily basis.
Work in progress: The work in progress is that stage of stocks, which are semifinished products. These include burger buns, hotdog buns, pizza base etc.
Finished goods: There are the goods, which are ready for the consumers. In Paris
Bakery, the end-products are cake, pastry, bread, cookies, chocolate. The production is
undertaken on requirement basis, not on a fixed basis.
Packaging: Packaging material used for packing cakes, bread, cookies etc. Paris
bakery buys these materials in wholesale from suppliers outside Odisha and stores
them in its warehouse. There is minimal to zero wastage as these materials have very
long life time.

Some of the key features of ideal inventory are

A Well-Stocked Bakery Inventory

For this, the bakery should to have a proper ordering system in place. Its weekly sales must
be projected first. Projecting the sales before placing the bakerys order will ensure that the
correct amount of product is ordered.

A Well-Organized Bakery Inventory

A well-organized inventory will not only make locating specific items easier for bakerys
employees, but it will also provide more attractive visual which will make the entire back
room seem well kept. Properly organizing the inventory will also prevent crosscontamination of food products

A Clean Bakery Inventory

An inventory must remain clean at all times to always remain effective. The likelihood of
pests in the back room which are often attracted by the dark spaces and unlimited food
quantity can be removed by maintaining a clean inventory. The daily and weekly
cleaning checklists should be created for the area to maintain inventory cleanliness.

Inventory costs:
Inventory brings with it a number of costs. This cost can be due to space requirement,
material handling, etc to breakage and theft also. The different types of costs are:1. Holding (or carrying) Cost: (Warehouse): The holding cost consists of the cost of the
storage facilities i.e. rent, electricity, handling of material, interest charges, tax, insurance,
salary, software for maintain inventory status etc. If the holding cost is high then the company
has to maintain a low level of inventory.

The holding costs of the Paris Bakery factory/warehouse are as follows:

Electricity Rs 50000/month
Rent- Rs 80000/month
Employee salary- Rs 3.5 lakhs/ month (70-80 employees)

The holding costs of the Paris Bakery outlet at Jaydev Vihar are as follows:

Electricity Rs 10000/month
Rent- Rs 30000/month
Employee salary- Rs 15000/ month (3 employees)

2. Ordering costs: It consists of the costs that are associated with placing the order and
receiving it, regardless of the inventory size. It refers to the transportation costs, counting
items and calculating order quantities, price negotiation, purchase order generation, followup, inspecting materials for quality etc.
The ordering costs of the Paris Bakery factory/warehouse which includes the transportation
cost is Rs 60000-70000/ month.
3. Shortage costs: The shortage costs occurs when there is a shortage of stocks or the stock is
not available, so an order for that item must wait until the stock is replenished or cancelled. A
trade-off exists between carrying stock and the costs resulting from stock out. There will be a
loss of profit, loss of goodwill and late charges.
4. Set-up Costs: The Set-up costs is the costs incurred when the firm produces its own
inventory, the costs of setting up of the machines such as arranging tools, drawings, cleaning
the machine etc.The initial costs of the Paris Bakery factory/warehouse which includes the
machine setup cost is 2.5 crores.

Level of inventory:
1. Size of order: The quantity of items ordered by the Paris Bakery outlet per day is as
follows:
Pastries 60
Cake - 10
Cookies 2 kg per variety (order triggered only at reorder point)
Snacks 50
Bread 35
2. Time of order: The time of items ordered by the Paris Bakery outlet is as follows:
Pastries order comes in morning
Cake - order comes in twice
Cookies - order comes in twice
Snacks order comes in twice
Bread order comes in morning

3. Lead time: Time between placing an order and its receipt.

The Lead time of the various raw materials required at the Paris Bakery factory/warehouse
are as follows:
Grocery items like flour, sugar, chemicals, colours , choclates etc 15 days
Perishable items like milk, vegetables etc 1 day
The lead time of various items available at Paris Bakery outlet at Jaydev Vihar is as follows:

Pastries 1 day
Cake- 1 day
Cookies -1 day
Snacks 1 day
Bread -1 day

4. Reorder point: The inventory level at which a new order should be placed.
The Lead time of the various raw materials required at the Paris Bakery factory/warehouse
are as follows:
Grocery items like flour , sugar, chemicals, colours , choclates etc Stock of 2 days left
Perishable items like milk , vegetables etc Stock of 2 days left
The lead time of various items available at Paris Bakery outlet at Jaydev Vihar is as follows:

Pastries 2-3 pieces per variety

Cake as per order
Cookies - 500 gm
Snacks 1 day 2 pieces per variety
Bread -1 day 2 pieces per variety

Inventory control techniques:

ABC Analysis:
It is one the widely used techniques for the control of inventory. Objective of ABC control is
to vary the expenses associated with maintaining appropriate control according to the
potential savings associated with the proper level of such a control. A may account for more
than half the total value usage in the inventory. These items require very careful management
and careful estimates. Generally, class C items which in total account for only a small percent
of the total value of usage, requires very little effort to be devoted to forecast the of items.
The intermediate class B items justify a reasonable but routine effort in forecasting demands
and managing inventory.
Item Name
Cakes
Bread
Cookies
Muffins/Pastries
Snacks
Burgers/Hot Dogs

Daily Demand
8
60
7kg
40
30
20

Unit Cost
Rs 700 (per kg)
Rs 40
Rs 300 (per kg)
Rs 50
Rs 50
Rs 60

Daily Rupee Value

Rs 5600
Rs 2400
Rs 2100
Rs 2000
Rs 1500
Rs 1200

Classification
A
A
A
B
B
C

Pizzas
Gujiya

10
1.4kg

Rs 120
Rs 275 (per kg)

Rs 1200
Rs 385

C
C

VED Analysis:
The materials classification on the items is called VED analysis.
V-Vital items which render the requirement or the whole line operation in the process
totally and immediately inoperative, unsafe and if these items go out of stock or not readily
available, results in losses of whole production of whole period.
E-Essential items which reduce the equipments performance but not render it
inoperative or unsafe. The non-availability of items may result in temporary loss of
production or dislocation of production work. The replacement can be done without any
delay and without affecting the equipments performance seriously
D-Desirable items which are mostly non functional and dont affect the performance
of the equipment.
According to the observations we made in Paris Bakery, materials can be classified as
Vital: Flour, Milk, Sugar, Butter, Waterx
Essential: Cocoa Powder, Cream
Desirable: Chocolates, Nuts, Food Colour, Fruits

 FSN Analysis:
Materials can be classified on the basis of movement as fast moving, slow moving and nonmoving according to their consumption patterns. FSN analysis is especially useful to combat
obsolete items whether spare parts, raw material or component. Cut off points of three
classes are usually in items of number of issues in previous few years depends on the
peculiarities of an individual concern. FSN items in the shop are as followsFast Moving: Cakes, Cookies, Bread
Slow Moving: Pastries, Snacks
Non-Moving: Chocolates

First In First Out:

This method assumes that the first unit making its way inventory is first sold. Due to the
fluctuations in the economy and the risk of higher cost of producing goods over time,
businesses use FIFO to be more profitable. For example, Paris bakery prepares pastries at
regular intervals to stock in the refrigerator. As customers purchase pastries, the stockers push
the oldest product to the front of the fridge and replace newer pastries behind those old ones.
The pastries prepared two three days back are thus the ones first sold, whereas the later
prepared pastries are sold after the older pastries. This ensures that older products are sold
before they perish or become obsolete, and result in loss.

Inventory Turnover:
It is the ratio showing how many times a company's inventory is sold and replaced over the
period observed. The total number of the days in the period is then divided by the inventory
turnover formula to calculate the days it takes to sell the inventory on hand or "inventory
turnover days."
Inventory turnover = Sales/Inventory = Cost of Goods Sold/Average Inventory
This ratio is compared against industry averages. If the turnover ratio is low then it suggests
poor sales and, hence, excess inventory. If the turnover ratio is high it suggests that it has
either strong sales or ineffective buying.
The high inventory levels are not healthy because they represent an investment where the rate
of return is zero. The company is prone to trouble if the prices begin to fall.
Inventory Turnover for Retailer (Jaydev Vihar store) = Sales/Inventory
= Rs 20000/ Rs 11400 = 1.754
Inventory Turnover for Factory = Sales/Inventory = Rs 80000/ Rs 36000 = 2.222

Issues Faced in the Bakery Outlet and Factory:

10% wastage happens per day for products whose shelf life is less, because of manual
forecasting.

Inventory is being maintained at both retail stores & warehouse.

Large no. of Pan-India suppliers are difficult to manage.
New stores setup within a short distance is not effective in increasing sales and hence
margin is getting hampered.

Recommendations and Conclusion:

Using the data so collected, ABC, FSN, VED and FIFO analysis was done. We found that the
following

They are currently using a software for accounting purpose. We recommend use of
efficient forecasting software to take care of seasonal variation in demand.
FIFO should be followed & practiced more rigorously to avoid loss that may occur
due to the shelf life of product being low.
Currently the management does not follow any scientific methodology for managing
inventory; we suggest using the ABC classification to classify.