Based on the overage problem of Manila Supermarket, we have identified two major contributing

causes: the wrong item barcode is scanned into the system and the purchasing department orders
inventory that exceeds the 21-day maintaining policy.

The first major cause has been identified to be caused by the current inspection process of the
supermarket’s warehouse department. This root cause was validated due to the current inspection
process of the warehouse, which only entails checking the cases’ physical condition. If the cases are not
wet, tampered with, or dented, it passes the inspection. As a result, wrongly delivered contents or SKUs
are received into the inventory system, while the barcode scanned is for the intended SKU that is
expected to be delivered or received by the supermarket. This leads to an additional count for the right
SKU in the inventory system but a loss in terms of its actual count, as the actual is attributed to the
wrongly received items. Hence, the total incurred cost due to overages amounted to Php 19,526.40,
where costs are reflected in the stock cards.

On the other hand, the second major cause is divided into four root causes. The first root cause is the
same as the previous one. Due to inaccurate system count because of wrongly received items, the
system count for that item will decrease over time due to demand, but the actual count will be
substantial, leading the purchaser to order more for that item. In other words, the system does not
reflect the true quantity of the item. As a result, this is validated by Figure 5.13, which shows that there
is at least one occurrence per month where the system count is less than the actual count. Hence, it is
validated again to be a contributor to ordering excessive inventories.

The second root cause is the supermarket’s availing of quantity discounts. However, this root cause is
invalidated as, according to the interviews with the purchaser, the only suppliers that give out quantity
discounts are those that supply liquor and alcohol, which is not the scope of the current study.

The third root cause is the supermarket’s cycle count policy. According to the interviews with the
purchaser and staff of purchasing department, their cycle count policy is only reactive to inventory
circumstances, such as when the sales trend doesn’t seem to change or when there is a drastic change.
Moreover, their policy indicates that fastest moving items, or hot items as they call it, must be counted
once a month, that warehouse only does it once a year, and that no wall-to-wall counting is initiated. To
prove this, an example of a stock card in Figure 5.14 was acquired, indicating that cycle count is initiated
when an error is already detected. Hence, it is validated.

The last root cause concerns the supermarket’s forecasting policy, where their forecast only considers
the three most recent 21-day sales periods. This serves as a problem, as based on interviews with the
purchaser, there is no underlying basis for only three periods. Secondly, among the sales from the three
most recent sales periods, the highest is considered, which gives the impression of an optimism bias and
time period bias across the different subtypes of fast-moving goods. To verify this, the proponents
computed the inventory accuracy by using the mean average percentage error (MAPE) and tracking
signal formulas. Based on the inventory data that the supermarket provided to us, the MAPE came out
to be 10.24%, which suggests that there is a low forecasting accuracy, according to Swanson (2015). As
for the tracking signal, the computed value is -4.38, which suggests that there is over-forecasting
(Chockalingam, 2009).

In summary, the validated root causes to the overage problem are the inspection process problem,
current cycle count policy, and forecasting policy.

Slide time stamp

6 – 2-16

7 – 16-50

8 – 50-1:06

9 – 1:06-1:13

10 – 1:13-1:48

11 – 1:48-2:08

12 – 2:08-2:47

13 – 2:47-3:40

14 – 3:40 -END