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MANAGEMENT REPORT ON
LETTER OF TRANSMITTAL
GROUP MEMBERS
Kamran Siddiqui.
Professor &Senior
Fellow
AQSA
KHALID
FARAH IRFAN
IoBM, Karachi
Dear Sir,
MAHEEN KHAN
MONIS AHMED KHAN
SYED JAHANZEB HAIDER
15734
16301
16811
15806
13285
This report discusses in detail the Procurement and inventory management of Midas
Corporate & Industrial Clothing that is leading manufacturer of Industrial Corporate & Work
wear garments in Pakistan. It is subsidiary company of Shahbaz Group of Industries.
Sincerely,
AQSA KHALID (ID -15734)
FARAH IRFAN (ID-16301)
MAHEEN KHAN (ID-16811)
MONIS AHMED KHAN
(ID-15806)
ACKNOWLEDGEMENT
The Study of Procurement and Inventory management system at Midas Corporate &
Industrial Clothing in the work wear garment Sector was undertaken by the students of
IoBM (as mentioned in title page).
We would like to express our sincerest gratitude to Team Midas for their cooperation,
assistance and contribution in successfully executing this study.
We would like to express my thanks and gratitude to all those who helped us in making this
report.
Especially we would like to thank;
Our course instructor Professor Kamran Siddiqui for his support and guidance in the
course Procurement and inventory management
Interviewees at Midas who gave us their precious time for sharing their personal
experience with us and guided us throughout till the completion of our objective.
The great appreciation to the whole team of Midas and special thanks to:
CONTENTS
INTRODUCTION:.......................................................................................................... 4
LITERATURE REVIEW................................................................................................... 9
Setting up of various stock levels:...........................................................................9
Re-ordering level:................................................................................................. 9
Maximum Level:................................................................................................. 10
Minimum Level:.................................................................................................. 10
Average Stock Level:.......................................................................................... 11
Danger Level:..................................................................................................... 11
Lead time........................................................................................................... 11
Preparation of Inventory Budgets:.........................................................................11
Maintaining Perpetual Inventory System:..............................................................12
Establishing Proper Purchase Procedures:.............................................................12
Inventory Turnover Ratio:...................................................................................... 13
ABC analysis:......................................................................................................... 13
PROCUREMENT AT MIDAS SAFETY............................................................................14
PROCUREMENT ON CONFIRM ORDER:...................................................................14
Fabric procurement cycle...................................................................................... 15
Trims Procurement cycle....................................................................................... 15
PROCUREMENT AGAINST FORECAST.....................................................................16
Supplier selection process..................................................................................... 16
Fabric Supplier Selection Process.......................................................................16
Trims Supplier Selection Process........................................................................17
Supplier re-evaluation........................................................................................ 17
FINANCE ASPECT OF PROCUREMENT DEPARTMENT:..............................................17
Budgeting Process:............................................................................................. 17
Balancing cash flows and negotiating payment terms:......................................18
Inventory Management at Midas Safety...................................................................18
Work in Process Inventory...............................................................................19
Finished Goods Inventory...............................................................................19
Leftover Inventory and Their Costing:............................................................19
Recommendation:.................................................................................................... 20
INTRODUCTION:
Midas Corporate & Industrial Clothing is a part of Midas Safety group and a leading
manufacturer of work-wear garments with a diverse range of corporate, industrial and
protective clothing, From standard work wear, to highly sophisticated high visibility, and
flame-retardant garments ,we offer a one-stop manufacturing solution for an extensive workwear range of both knitted & woven garments.
Midas Corporate & Industrial Clothing produces a diverse assortment of protective and
corporate clothing, starting from simple aprons to highly sophisticated garments that meet
the demands of the Industrial, and Corporate workplace.
Their garments provide the protection, good look, functionality, and comfort to end users for
a wide variety of industries including automotive, forestry, construction, oil and gas (F-R &
Standard industrial), medical, food processing, pharmaceuticals, electrical (F-R & Standard
industrial), road safety, household, and many more.
No. of Units: 04
Mission:
We are Work Wear Clothing Manufacturer, focused on providing consistent quality and
superior services through operational excellence & a highly motivated competent team. We
act with integrity, uphold meritocracy, ensure social & environmental compliance and exhibit
care for all stakeholders.
Vision:
To be one of the leading manufacturers of Work Wear Clothing, renowned for exceeding
customer expectations.
PRODUCT RANGE:
Midas clothing covers the diversified range of products depending upon the end usage and
nature of Work.
When it comes to heavy Midas work or a 365 days corporate wear, Midas clothing provides a
complete solution and head to toe protection.
Below are the diversifies product ranges which are being covered;
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1. Midas Wear
2. Craftsmen Wear
3. Flame Retardant
4. Water & Oil Repellent
5. Hivisiblity Wear
6. Corporate Wear 365 Days
7. Food & Catering Range
8. Hospital Wear
9. Beauty & Spa
10. Knits Wear
MAJOR CUSTOMERS OF MIDAS CLOTHING:
A large range of UK , USA and Europe market is being covered by Midas
providing the complete safety solution, few of them are listed below;
clothing by
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MANUFACTURING PROCESS:
SWOT ANALYSIS
Strengths
1.
2.
3.
4.
5.
6.
7.
8.
9.
Weaknesses
1. Lack of direct customer contact (involvement of
2.
3.
4.
5.
6.
agents)
Control over suppliers for raw material
Limitation for automation because of product diversity
High rate of employee turnover
Absence of a proper R&D Department.
In-house testing to gauge parameters
Opportunities
1.
2.
3.
4.
5.
6.
Challenges
1.
2.
3.
4.
5.
6.
LITERATURE REVIEW
Inventory or stock refers to the goods and materials include that a business holds for the
ultimate purpose of resale. Inventory management is the process of efficiently overseeing
the constant flow of units into and out of an existing inventory. This process usually involves
controlling the transfer in of units in order to prevent the inventory from becoming too high,
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or falling to levels that could put the operation of the company into jeopardy. Competent
inventory management also seeks to control the costs associated with the inventory, both
from the perspective of the total value of the goods included and the tax burden generated
by the cumulative value of the inventory.
SETTING UP OF VARIOUS STOCK LEVELS:
To avoid over-stocking and under stocking of materials, the management has to decide about
the maximum level, minimum level, re-order level, lead time, danger level and average level
of materials to be kept in the store. These terms are explained below:
Re-ordering level:
It is also known as ordering level or ordering point or ordering limit. It is a point at which
order for supply of material should be made. This level is fixed somewhere between the
maximum level and the minimum level in such a way that the quantity of materials
represented by the difference between the re-ordering level and the minimum level will be
sufficient to meet the demands of production till such time as the materials are replenished.
Reorder level depends mainly on the maximum rate of consumption and order lead time.
When this level is reached, the store keeper will initiate the purchase requisition. Reordering
level is calculated with the following formula:
Re-order level =Maximum Rate of consumption x maximum lead time
OR
ROP = (Demand x lead time) + safety stock
In case of garment industry order level depends upon the master production schedule lead
time of fabric or trims and safety stocks defined by customer.
Maximum Level:
Maximum level is the level above which stock should never reach. It is also known as
maximum limit or maximum stock. The function of maximum level is essential to avoid
unnecessary blocking up of capital in inventories, losses on account of deterioration and
obsolescence of materials, extra overheads and temptation to thefts etc. This level can be
determined with the following formula.
Maximum Stock level = Reordering level + Reordering quantity - (Minimum Consumption
x Minimum re-ordering period)
There are some orders which buyer takes on repeat basis for this purpose trims and fabric
stocks are maintained some time on buyer approval sometimes on company risk but they
are monitored on maximum level strategy that they dont get exceed from maximum level.
Minimum Level:
It represents the lowest quantity of a particular material below which stock should not be
allowed to fall. This level must be maintained at every time so that production is not held up
due to shortage of any material. It is that level of inventories of which a fresh order must be
placed to replenish the stock. This level is usually determined through the following formula:
Minimum Level = Re-ordering level (Normal rate of consumption x Normal delivery period)
Garment companies maintain minimum fusing level is defined and as soon as it reaches to
that level a fresh order is placed. White zippers in running quality are also procured and kept
in stock which can be resized and dyed as per requirement to save procurement lead time.
Average Stock Level:
Average stock level is determined by averaging the minimum and maximum level of stock.
The formula for determination of the level is as follows:
Average level =1/2 (Minimum stock level + Maximum stock level)
This may also be expressed by minimum level + 1/2 of Re-ordering Quantity.
Danger Level:
Danger level is that level below which the stock should under no circumstances be allowed
to fall. Danger level is slightly below the minimum level and therefore the purchases
manager should make special efforts to acquire required materials and stores. This level can
be calculated with the help of following formula:
Danger Level =Average rate of consumption x Emergency supply time.
Lead time
It is the amount of time between the placing of an order and the receipt of the goods.
prepared. Sales budget generally provide the basis for preparation of production plans.
Therefore, the first step in the preparation of a purchase budget is the establishment of sales
budget. As per the production plan, material schedule is prepared depending upon the
amount and return contained in the plan. To determine the net quantities to be procured,
necessary adjustments for the stock already held is to be made. They are valued as standard
rate or current market or average moving rate. In this way, material procurement budget is
prepared. The budget so prepared should be communicated to all departments concerned so
that the actual purchase commitments can be regulated as per budgets. At periodical
intervals actual are compared with the budgeted figures and reported to management which
provide a suitable basis for controlling the purchase of materials.
Maintaining Perpetual Inventory System:
This is another technique to exercise control over inventory. It is also known as automatic
inventory system. The basic objective of this system is to make available details about the
quantity and value of stock of each item at all times. Thus, this system provides a rigid
control over stock of materials as physical stock can be regularly verified with the stock
records kept in the stores and the cost office.
Midas is following perpetual inventory system
Establishing Proper Purchase Procedures:
A proper purchase procedure has to be established and adopted to ensure necessary
inventory control. The following steps are involved.
(a)
Purchase Requisition:
It is the requisition made by the various departmental heads or storekeeper for their
various material requirements. The initiation of purchase begins with the receipts of a
purchase requisition by the purchase department.
(b)
Inviting Quotations:
The purchase department will invite quotations for supply of goods on the receipt of
purchase requisition.
(c)
Schedule of Quotations:
The schedule of quotations will be prepared by the purchase department on the basis of
quotations received.
(d)
The schedule of quotations is put before the purchase committee who selects the supplier
by considering factors like price, quality of materials, terms of payment, delivery schedule
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etc.
(e)
Purchase Order:
It is the last step and the purchase order is prepared by the purchase department. It is a
written authorization to the supplier to supply a specified quality and quantity of material
at the specified time and place mentioned at the stipulated terms.
Inventory Turnover Ratio:
These are calculated to minimize the inventory by the use of the following formula:
Inventory Turnover Ratio
= Cost of goods consumed/sold during the period/Average inventory held during the
period
The ratio indicates how quickly the inventory is used for production. Higher the ratio,
shorter will be the duration of inventory at the factory. It is the index of efficiency of
material management. The comparison of various inventory turnover ratios at different
items with those of previous years may reveal the following four types of inventories:
ABC ANALYSIS:
In order to exercise effective control over materials. A.B.C. (Always Better Control) method is
of immense use. Under this method materials are classified into three categories in
accordance with their respective values. Group A constitutes costly items which may be
only 10 to 20% of the total items but account for about 50% of the total value of the stores.
A greater degree of control is exercised to preserve these items. Group B consists of items
which constitutes 20 to 30% of the store items and represent about 30% of the total value of
stores. A reasonable degree of care may be taken in order to control these items. In the last
category i.e. group Q about 70 to 80% of the items is covered costing about 20% of the
total value. This can be referred to as residuary category. A routine type of care may be
taken in the case of third category. If this method is applied with care, it ensures
considerable reduction in the storage expenses and it is also greatly helpful in preserving
costly items. In garments fabric is the most expensive item therefore it is kept in A category.
Next is reflective tapes, zippers and metal trims. In C category are threads and labels.
In Midas Clothing main procurement is done for two items fabric and trims. Two types of
procurements are done, one for purchase order and other for forecast.
MIDAS PROCUREMENT
Procurem
ent on
confirm
order
Procurem
ent of
fabric &
trims
Procurem
ent
against
forecast
forecast
terms (FOB, CNF, and CIF), dispatch port and payment terms, procurement department
forwards it to stores department for raising purchase requisition. On receipt of PR, PO
(Purchase order) is raised. PO is then signed by required persons and sent to customer as his
order confirmation. On delivery date supplier sent two sent of headers (bulk
representatives), lab report and cmc to Midas and customer. Procurement team takes
comments from QC for shade and test ratings and along with it follow merchandiser for
customer comments on shade. In some customers Midas QC takes the decision for lifting the
shipment. For lifting procurement department coordinates with commercial/imports who
handles all inbound and outbound logistics. On fabric in-house, inspection is done by QC as
per standards and then it becomes a part of inventory.
Trims Procurement cycle
On order confirmation, W/O & CL are forwarded to stores who raise PR after allocating stocks.
PR is cross checked and signed off by the procurement team and PO is raised. For trims most
suppliers are fixed, in case of new trim development department finds a new supplier and
advise the procurement team where to place order. For bulk quantity trims items,
procurement department takes quotes from multiple suppliers and supplier whose sample
gets approved and gives best price and required lead time is selected. Cartons (packing trim)
are in-housed just before the shipment on request of finishing department to reduce holding
cost. For trims too artworks are verified for labels, shades are provided to supplier for
production and on trims in-house , inspection is done by QC as per standards and then it
becomes a part of inventory.
Supplier Selection
Process
Nominat
ed
Supplier
Approve Supplier
d
resupplier evaluatio
of Midas
n
quality or other issue (lead time or pricing issue) with customer nominated supplier, an
alternative supplier is advised to customer by sending the trims card for approval. And if the
customer has approved the trims card then orders is placed.
Supplier re-evaluation
All approved suppliers are evaluated on an annual basis for which a Supplier evaluation
form is prepared by procurement team and approved by Manager QC and procurement.
Evaluation of suppliers is currently being carried out on the basis of number of rejections and
service level goods delivered on defined lead-time or not) during the year.
FINANCE ASPECT OF PROCUREMENT DEPARTMENT:
Budgeting process:
Procurement budgeting activity is carried out every year in the month of September-October
by procurement team who prepares a working of material requirements during the year
based on the forecasted number of orders forwarded by the Merchandising department. For
price consideration, the current price trend of materials is used. The budget is then
forwarded to Head MM for review. The budget is finally reviewed by management and gets
approved by Chief executive officer of MCL.
In Raw Material only Fabric budget is prepared while other items in trims budget is not
prepared
Balancing cash flows and negotiating payment terms:
The material planning for forecast or orders is done in such a way that cycle of cash out-flow
and cash in-flow is kept shortest. Like for small quantity but high value items (specialized
fabrics) where LC , credit terms are not possible , payment against shipment is encouraged
and shipment is planned just in time so that time period between payment to supplier and
goods shipment is shortest. Mostly credit LCs are encouraged and advances are dis-courage.
Where there are MOQs and item consumption is uncertain (no forecast is given and turnover
time is high) then an analysis of price paid for MOQ quantity plus holding cost is done with
price of exact requirement with surcharge and then decision is taken on that basis.
LC is opened for a whole quarter for a single supplier in order to reduce cost of LC
amendments.
Midas Safetys inventory mainly comprises of fabric and trims which is mostly procured as
per plan and therefore holding time is less. Usually the fabric and trims procured are
received at store. Then those are checked for quality parameters and physical count.
Software is updated as per receiving.
However in the case where fabric saved due to decrease in consumption or trims that are left
as loose stock and in the case when the fabric is ordered for forecast but forecast got
reduced and company is chasing customer for forecast , fabric remains in inventory for a
longer period of time. They may be used in repeat orders or a new order requiring same
accessories. A semi year physical inventory count is done to ensure that inventorys count is
matched with the figure in software.
Packed goods are then moved to ware house where they are stacked according to their
shipment date. Finished goods are moved as per customers request on available vessels.
Finished goods inventory turnover is maximum 30 to 45 days.
LEFTOVER INVENTORY AND THEIR COSTING:
Sometimes fabric procured may be utilized less because of a decrease in consumption in
production, then that fabric is saved. Then this fabric cost would be measured in terms of
weighted average method. Fabric saved are mostly utilized in future orders requiring same
fabric. However if trims are saved then there might be a problem to use them again specially
in case of labels because they have different barcodes/ item codes/ care instructions. So
these stocks are then of zero value to the company. Dead stocks and slow moving stocks are
evaluated on the basis of their last consumption month and year. For slow moving,
Merchandisers inform customer that this stock is slow moving and incurring us a cost. For
dead stock too first all efforts are made, like to use the fabric in some other order or to offer
some other customer and the fabric left after that is offered for bidding to local market
customers.
RECOMMENDATION:
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