Graduation Project

Progress Report

"Enhancing Profitability through

Inventory Management and
Reduction of returns."

BY
Achintya Mishra
BFT/19/150
Need of the Project
Reduction of Returns
To identify potential bestsellers and finding the returns, cancellations
and low Return on Sales.
To come up with solutions to reduce returns (DTOs), cancellations and
Return-to-origin (RTOs) to reduce the cost incurred in reverse logistics.
To develop loyal customers by ensuring they receive the items they
like and want on time without any delays.

Inventory Management
For planning proper stock mix for the inventory by analysing the past
sales data and sales mix.
To come up with a proper plan for restocking of products by
categorizing the products into grades on basis of past sales.
Coming up with a plan to push the potential products to perform
better by analysing the problems involved.
Objective of the Project
Inventory Management
Identifying top sellers, moderate sellers and slow movers by analysing past
sales data.
Creating a plan and process for regular re-ordering and re-stocking on basis
of the past sales performance of the products.
Creating a process for identifying potential bestsellers and working on the
problems and obstacles with the current product.

Reduction of Returns

Identifying the products with highest returns (DTOs), cancellations and

RTOs and finding the reasons behind this by analysing past returns data.

Coming up with solutions to the problems found by analysing the returns

data and coming up with corrective measures .

Analysing the Final results after Implementation.

Research Methodology
Problem Statement

The desired profits and yield are currently not being achieved due to lack of a
proper inventory management plan in place, no proper strategy for restocking
products and a big problem of customer loyalty and customer retention due to
some unfound reasons that are also resulting in high returns and low net sales
of some potential bestsellers.
Research
Design
Methodology
Step I

a) Analysis of sales data

i. Analyzing data of Likha Brand’s past sales data and figuring out units sold
per month and finding out top sellers/categories/collection/styles.

ii. Analyzing data and finding out the most sold products/styles/categories,
the revenue generated, price point of selling, discounts being offered.

iii. Categorizing products into A, B and C grade on basis of the past sales data
using Return on Sales (ROS).
b) Analysis of returns data

i. Analyzing data of Likha Brand’s past returns and figuring out units of
products returned and finding most returned
products/collection/categories/styles.

ii. Analyzing the percentage share and the reasons for Deliver-to-origin
(DTOs), cancellations and Return-to-origin (RTOs).

iii. Calculating the net sales using sales data and returns data.

iv. Again, Categorizing products into A, B and C grade on basis of the net
sales data.
 Step II

a) Identification of weak areas

i. Preparing a survey for Top Customers and Bottom Customers of Likha

Brand and getting feedback from them through Telephonic conversations.

ii. Finding the root cause of the RTOs, DTOs and Cancellations discovered
through data analysis and telephonic survey.

iii. Analyzing the data of current inventory in the warehouse and finding out
the inventory stock mix.
 Step III

a) Finding solutions to strengthen the weak areas

i. Devising a proper plan for restocking inventory on basis of their product

grades and liquidating the poor performers.

ii. Improving the customer experience by changes into the product and
overall experience based on the returns data and feedback of telephonic
survey.

iii. Pushing potential best sellers by finding ways to reduce their returns
and making them one of bestselling products of the brand.
 Step IV

a) Implementation of the findings

i. Implementing the new findings and plans for reduction of returns and
better inventory management.

b) Analyzing the results

i. Analysing the data of the following weeks to see the impact made by the
suggested changes.

c) Recommendation for Future Improvements

Literature Review
 E-Commerce

Electronic Commerce is an emerging

concept that describes the method of
buying, selling or exchanging products and
services via computer networks including
the web.

Most transactions in E-commerce mainly be

classified into these main categories:

Business-to-consumer (B2C)
Business-to-business (B2B)
Consumer-to-consumer (C2C)
 Growth of eCommerce in India

The Indian online grocery market is estimated to reach US$ 26.93 billion in 2027
from US$ 3.95 billion in FY21, expanding at a CAGR of 33%. India's consumer
digital economy is expected to become a US$ 1 trillion market by 2030, growing
from US$ 537.5 billion in 2020, driven by the strong adoption of online services
such as e-commerce and edtech in the country.

According to Grant Thornton, e-commerce in India is expected to be worth US$

188 billion by 2025.

What is Inventory Management and why is it Important?

Inventory management helps companies identify which and how much stock to
order at what time. It tracks inventory from purchase to the sale of goods. The
practice identifies and responds to trends to ensure there’s always enough stock
to fulfill customer orders and proper warning of a shortage.
Listed below are the benefits of utilizing an effective inventory
management system –

1. Greater efficiency and productivity

2. Customer satisfaction
3. Increased visibility
4. Increased revenue and profit margin

Important Terms

Rate on Sales (ROS) ->

Return on Sales = Quantity Sold / Number of Days

Stock Cover ->

Stock Cover = Available Stock/ Rate of Sales

Reorder Quantity

The amount that needs to be ordered repeated for a minimum number

of days (here taken as 60) to ensure that there is enough stock is
known as the reorder stock.

Reorder Quantity = ROS* 60

Trigger Date

The trigger date that must be specified so that a reminder is send to

reorder up a specific item is sent out to prevent running out of stock

Trigger Date = Present Date + Stock Cover - Lead time

Sales Mix

Sales mix can be defined as the contribution made by each product or category to
the company sales. The sales mix is significant because some products or services
may be more profitable than others, and if a company's sales mix changes, its
profits also change.

Stock Mix

Stock mix is the combination of products a company sells or manufactures. The

stock mix is determined by the demand for certain products and the profitability
of those products. It is planned after analysing the sales mix.
 ABC Analysis

An ABC analysis is a method of inventory categorization that aids

retailers in identification of their most (and least) valued items. It's
based on the Pareto principle, which states that 20% of your best-selling
products contribute to 80% of your total income. Managing inventory is
not only the most critical but also the most expensive part of running a
business. The ABC analysis is a technique that helps gain greater control
of inventory and profitability.

It classifies your inventory using three categories based on total

revenue:

A-Grade
B-Grade
C-Grade
 Reduction of Returns

Although return rates largely depend on what you sell, the National Retail
Federation reported reports that the rate jumped to 16.6% in 2021, up
from 10.6% in 2020. The categories with the highest return rates have
remained mostly unchanged in recent years, with the top four including
auto parts, apparel, home improvement and housewares.

Why It's Important to Address Product Returns ?

When you address your returns and optimize your company's return
process, you'll experience:

Increased profit margins Higher recovery rates

Time savings
Improved customer satisfaction
Reduced costs
Greater storage space availability
Time & Action Calender
Week 1 –> Induction into Nykaa Fashion, learning about company background, company policies,
categories and products.

Week 2 -> Learn about Nykaa Fashion’s Indianwear Private Brands, i.e., Likha, Nyri, Gajra Gang.

Week 3-> Understand the working of different departments and identification the scope of research and
project.

Week 4-> Collect sales data for the month of January through Nykaa Fashion’s tableau and analyze past
sales trends to get a deeper insight into how different products/categories/price ranges are doing,
identify sales mix and categorize them into grades.

Week 5-> Collect returns data for the month January through Nykaa Fashion’s tableau and identify the
major reasons for returns.

Week 6-> Conduct a telephonic customer survey of top and bottom customers of Likha Brand to get
detailed feedback about the problem.
Week 7-> Analyze the responses received after customer survey and collect GRN data to
identify stock mix.

Week 8-> Use of GRN data, returns data and Sales data to calculate ROS and finally
identify net sales of products and categorize them into grades.

Week 9&10 -> Pinpoint common return problems and discover solutions for reduction of
returns.

Week 11 -> Recommending and implementing the improvements that can be made for
better results.

Week 12&13 -> Track the effect of Implementation & Make a Dashboard for easy analysis
at a glance.

Week 14 -> Analysing the result of the implementation.

Data Collection & Analysis
(Work Done Till Now)
 Analysis of Past Sales data (Jan '23)

Salwar Suits & Sets is the best selling Category (Kurta Set is the best selling
sub category) and Jumpsuits is the least selling.
 Analysis of Past Sales Data (Jan '23)

Products with Selling Price

between 1000-1999 are the most
bought, whereas products with
selling price between 6000-6999
are the least sold.

M and L size products have the

most buyers.
 Analysis of Past Sales data (Jan '23)
ABC Analysis

A Grade (ROS > 0.5) B Grade (ROS b/w 0.2 - 0.5) C Grade ( ROS < 0.2 )
 Analysis of Returns Data (Jan '23)

Leakages Summary of Likha's Private Indianwear Brands

 Analysis of Returns Data (Jan '23)

Reasons for Cancellations

Reasons for DTOs (Deliver

to Origin/Returns
Analysis of Returns Data (Jan '23)

SKUwise Analysis
 Customer Survey

Best Customers
 Customer Survey

Most Returns
Customer Survey
Customer Survey
 Customer Survey

Key areas of improvement:

1. Standardisation of fits as per Indian Bodice.

2. Improving product quality through quality checkpoints.
3. Ensuring garment is as per size chart on website.
4. Getting shoot image to be close to actual product.
5. Improving COGS to provide better SP to customers.
Expected Outcome
1. Reducing the total of DTOs, RTOs and cancellations to 25%, that is,
as per to industry standards.
2. Improving the performance of potential best sellers and increasing
their ROS to more than 0.5.
3. Restocking inventory in a way that sales mix is comparable to
inventory stock mix.
4. Increasing total profit earned by reducing returns and in turn
saving expenses incurred due to reverse logistics.
5. Coming up with a standardised fit to reduce fit issues in products
and in turn gaining customer satisfaction and customer loyalty.
References:
https://www.zendesk.com/in/blog/sales-mix/
https://www.connectpointz.com/blog/ways-to-reduce-customer-returns
https://www.searchenginejournal.com/ecommerce-
returns/382090/#:~:text=In%20short%2C%20reducing%20returns%20is,uncertainty%20that%20drives%2
0over%2Dordering.
https://www.reverselogix.com/industry-updates/returns-management-tips/
https://www.netsuite.com/portal/resource/articles/inventory-management/inventory-management.shtml
https://www.ibef.org/industry/ecommerce
https://www.bigcommerce.com/ecommerce-answers/what-is-ecommerce-inventory-management/
https://bizfluent.com/how-6809257-calculate-rate-sale.html
https://www.grandviewresearch.com/industry-analysis/ethnic-wear-market-report
https://www.returnlogic.com/blog/shopify-returns-7-best-practices-to-reduce-your-return-rate/
https://startupsloth.com/the-advantages-and-disadvantages-of-free-returns-for-online-purchases/
https://dclcorp.com/blog/fulfillment/returns-management-process/
https://www.clickpost.ai/blog/ecommerce-returns-in-india
Thank you!