Optimal Inventory Control Policy for Consumer Products of Modern Retails by using MUSIC–3D Technique

Abstract

Background and Objectives: Modern retail business operates in a highly competitive environment. Therefore, if a business is not prepared to manage its inventory, it may result in either insufficient products to meet customer demands or an excess of available products. This research aimed to classify types of inventory and propose inventory control policy guidelines using the MUSIC-3D technique.

Methodology: Data from a case study dealing with consumer goods were collected over a 12-month period (from January to December 2022), covering 154 items. The data consisted of product codes, product details, quantity of items ordered, price per unit and lead time.

Main Results: ASZ product group, which consisted of six items, involves high-value products, which are difficult to obtain or have lead time of longer than 15 days, and exhibits the most uncertain demands. The proposed policy emphasizes the importance of forecasting to ensure that the stock quantity or order volume aligns with customer demands. For BSZ, BDZ and BEZ product groups, which included 14, 8, and 2 items, respectively, these are medium-value products with varying lead time, some exceeding 15 days and others not longer than 7 days. The proposed policy suggests periodic order planning in combination with appropriate forecasting techniques for each product as well as continuous demand analysis and careful review of supplier terms. The Min-Max ordering technique is recommended to prevent opportunity costs. Lastly, for the CSY, CSZ, CDY, CDZ, CEX, CEY and CEZ product groups, which included 1, 3, 3, 23, 51, 9, and 34 items, respectively, these are low-value products with varying lead time and inconsistent customer demands. The policy recommendations include ordering fixed quantities and maintaining low inventory levels, advance order planning and using Visual Check and Two Bin systems for inventory management. These measures should be tailored to specific items.

Conclusions: The MUSIC-3D technique can categorize products and establish suitable inventory control policies for consumer goods in modern retail businesses into 11 groups, with 11 corresponding approaches. This technique can help reduce holding costs, opportunity costs in sales and aids in efficiently managing stock throughout the supply chain. Additionally, it enhances inventory management standards and aligns order planning with both continuous and discontinuous demands.

Practical Application: The MUSIC–3D technique is a method that allows for the analysis of product categorization in three dimensions using a single technique, enabling interested parties to quickly analyze and manage inventory more efficiently. Moreover, this technique can be combined with various product categorization techniques, such as ABC-VEN-FSN or ABC-FSN-XYZ techniques, to further reduce inventory costs, including holding costs, ordering costs and opportunity costs from sales. It can be applied across retail, wholesale, logistics and manufacturing industries due to its versatility in analyzing different types of products with both certain and uncertain demands.