MINISTRY OF EDUCATION AND TRAINING

HCMC UNIVERSITY OF TECHNOLOGY AND EDUCATION



AN ESSAY ON INVENTORY MANAGEMENT SUBJECT

DESCRIBE VINAMILK'S INVENTORY MANAGEMENT

MODEL AND ANALYZE ITS STRENGTHS AND
WEAKNESSES.

Instructor: M.Econ NGUYEN HOANG LONG

Student: Group 3

Class time: Monday | Periods 10-12

Course Code: INMA321506E_22_1_02CLC

Ho Chi Minh City, October 2022

LIST OF MEMBERS
 Name Student ID Responsibility

NGUYEN PHAM KIEU DUYEN 20124215 Describe model + Presentation

NGUYEN PHUONG NHI 20124193 Strengths of model + Presentation

NGUYEN THI THANH HUYEN 20124186 Weaknesses of model + Presentation

VO DUC HUY 20142216 PPT + Presentation

LAM TRUC PHI 20124195 Format Essay + PPT + Presentation

Lecturer's comments:
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 TABLE OF CONTENTS

LIST OF ABBREVIATIONS......................................................................................4

I. INTRODUCTION.....................................................................................................5

II. CONTENTS.............................................................................................................6

1. Overview of Vietnam Dairy Products Joint Stock Company (Vinamilk)...............6

1.1. About Vietnam Dairy Products Joint Stock Company.....................................6

1.2. Functions, Objectives, Mission, Vision and Core Values of Vinamilk............8

1.2.1. Function.........................................................................................................8

1.2.2. Objective........................................................................................................8

1.2.3 Mission...........................................................................................................9

1.2.4 Vision..............................................................................................................9

1.2.5 Core Values....................................................................................................9

2. Describe the inventory management of Vinamilk...................................................9

2.1 Classification of the company’s inventory......................................................10

2.2 Inventory management activities.....................................................................10

2.3 Vinamilk’s inventory management model.......................................................12

2.3.1 Analysis of EOQ inventory model of Vinamilk...........................................12

2.3.2 Arrangement of types of inventory...............................................................13

3. Strengths and Weaknesses of Vinamilk’s inventory management model............14

3.1 Strengths..........................................................................................................14

3.2 Weaknesses......................................................................................................15

REFERENCES...........................................................................................................17
 LIST OF ABBREVIATIONS

US United States

WTO World Trade Organization

RGV Rail guided vehicle

EOQ Economic Order Quantity

FIFO First In, First Out

ERP Enterprise Resource Planning

 I. INTRODUCTION

In the current trend, Vietnam's extensive accession to The World Trade

Organization (WTO) has made the competitive environment of domestic enterprises
very exciting with many opportunities and challenges consciousness. In order to
survive and develop, domestic enterprises are forced to change their management
methods to improve product quality, lower product costs, and minimize production
costs to ensure product competitiveness products of your business.

For manufacturing enterprises as well as commercial enterprises, the

management of raw material inventory is a very important issue and has special
meaning because the management of raw materials inventory is carried out. Good
quality will help businesses reduce costs for storing raw materials, avoid occupying a
lot of capital for inventory, reduce costs for renting premises and renting warehouses
to store materials, and at the same time ensure a sufficient supply of raw materials for
production, avoiding the shortage of materials leading to production line stagnation,
shortage of supply components for the market leading to reduced profits, or loss of
customers, loss of market lost market share...

Currently, inventory management is considered to be a very important step in

corporate governance but sometimes it is not really valued and paid due attention in
domestic enterprises in general and those in domestic enterprises business in the dairy
sector in particular. Because of that, we decided to choose the topic: "Inventory
management at Vinamilk" to somewhat have an overview of the inventory
management of a business enterprise from there, it is possible to propose solutions to
improve the efficiency of this management.
 II. CONTENTS
1. Overview of Vietnam Dairy Products Joint Stock Company (Vinamilk)
1.1. About Vietnam Dairy Products Joint Stock Company

Vinamilk is the short name of Vietnam Dairy Products Joint Stock Company -
a company that manufactures and trades milk and dairy products as well as related
equipment and machinery in Vietnam.

Established on August 20, 1976, up to now Vinamilk has become the leading
company in Vietnam in processing and supplying dairy products, ranked in the Top 10
strong brands in Vietnam. Vinamilk not only owns 75% of the domestic milk market
share but also exports its products to many countries around the world such as the
United States (US), Canada, France, etc. Commitment to international quality, quality
Vinamilk has affirmed its aim. Vinamilk's goal of conquering everyone regardless of
national borders. Actively integrating, Vinamilk has prepared from human resources
to facilities and business capabilities to enter the market of the World Trade
Organization (WTO) countries firmly with a mark bearing the Vietnamese Brand.

After more than 30 years of launching to consumers, up to now, Vinamilk has

built 8 factories and 1 factory and is building 3 new factories, with a variety of
products, Vinamilk currently has over 200 dairy products. pasteurized, pasteurized
and dairy products.
The history of company's foundation:

On August 20, 1976, Vinamilk was established on the basis of taking over 3 milk
factories left by the old regime, including:

 Thong Nhat Dairy Factory (formerly Foremost factory).

 Truong Tho Dairy Factory (formerly Cosuvina Factory).
 Dielac Milk Powder Factory (formerly Nestle' milk powder factory)
(Switzerland).

1985: Vinamilk was honored to be awarded the Third Class Labor Medal by the State.

1991: Vinamilk was honored to be awarded the Second-class Labor Medal by the
State.

1995: Vinamilk officially inaugurated the first dairy factory in Hanoi.

1996: Vinamilk was honored to be awarded the First Class Labor Medal by the State

2001-2003: Vinamilk inaugurated the Can Tho Dairy Factory, Saigon, Binh Dinh,
Nghe An.

2006: Vinamilk inaugurated its first dairy farm in Tuyen Quang.

On January 19, 2006, the company was listed on the Ho Chi Minh Stock
Exchange. At that time, the capital of the State Capital Investment and Trading
Corporation held 50.01% of the Company's charter capital. On August 20, 2006,
Vinamilk officially changed the company's brand logo.

In 2009, the enterprise has developed 135,000 distribution agents, 9 factories

and many dairy farms in Nghe An, Tuyen Quang. In 2012, the company continued to
change the brand's logo.
 In the period 2010 - 2012, the enterprise built a liquid milk and powdered milk
factory in Binh Duong province with a total investment capital of 220 million USD. In
2011, Da Nang dairy factory was put into operation with an investment capital of up
to 30 million USD.

In 2016, inaugurated the first dairy factory abroad, which is Angkormilk Dairy
Factory in Cambodia. By 2017, continue to inaugurate Vinamilk Organic Dalat farm -
the first organic dairy farm in Vietnam.

In 2016, Vinamilk company was ranked by Forbes as a billion-dollar enterprise

in Vietnam with a brand value of more than $1.5 billion, In 2020, despite facing the
Covid-19 pandemic, the company is still determined price increased by 200 million
USD compared to 2019, reaching more than 2.4 billion USD.

According to the financial report of Vinamilk company in the second quarter of

2020, net sales of domestic business reached VND 25,456 billion. Direct exports
reached VND 2,451 billion, up 7.7% over the same period last year. In the first 6
months of 2020, Vinamilk's net revenue reached VND 29,648 billion, up 6.7%
compared to 2019.

Up to now, Vietnam Dairy Products Company has exported products to 54

countries and territories with a total turnover of more than 2.2 billion USD. Vinamilk's
stock is classified as a blue-chip stock in Vietnam, for businesses with stable growth
and revenue.

1.2. Functions, Objectives, Mission, Vision and Core Values of Vinamilk

1.2.1. Function

Vinamilk consistently provides worldwide quality nutritional solutions,

fulfilling the demands of all consumers with tasty, nutritious, and healthy products
associated with market leaders. Vinamilk liquid milk, Vinamilk yogurt, Ong Tho and
Phuong Nam Star Condensed Milk, Dielac Powdered Milk, Vfresh Fruit Juice... are
all popular.

1.2.2. Objective

 Positioning the brand as a pride of Vietnamese people

  Building new emotional value of Vinamilk company_ embodiment of life
 Constantly developing the scale and stature, implementing the standard of
covering goods to communes and wards across the country
 Reaching out to the most demanding markets such as the US, Japan...

1.2.3 Mission

To deliver valuable nutrition to the community with our respect, love and
responsibility.

1.2.4 Vision

To become a world-grade brand in the food and beverage industry, where people put
all their trust in nutrient and health products.

1.2.5 Core Values

Integrity: Integrity and transparency in actions and transactions.

Respect: To have self-respect, to respect colleagues. To respect the Company and

partners. To cooperate with respect.

Fairness: To be fair with employees, customers, suppliers and other parties.

Ethics: To respect the established ethical standards and act accordingly.

Compliance: To comply with legal regulations, the Company’s Code of Conduct and
the Company’s procedures and policies.

2. Describe the inventory management of Vinamilk

Vinamilk dairy factory operates on an automatic, closed line, from input materials to
product output.

Vinamilk has built the leading smart warehouse in Vietnam, with an area of 6000 m2
with 20 entry and exit gates, 105 meters long and 35 meters high, including 17 shelves
with a capacity of 27168 lots. Import and export goods automatically with 15 RGV
(Rail guided vehicle) transporting finished pallets to the warehouse and 08 Robot
Crane (Stacker Crane) arranging pallets into the shelf system.
2.1 Classification of the company’s inventory

Vinamilk categorized inventories by Standard No. 02, one of 26 accounting

standards published and notified by the Minister of Finance in Decision No.
149/2001/QD-BTC on December 31, 2001.

Source: The interim financial statements for the second quarter and six months ended
June 30, 2022 - Vinamilk

2.2 Inventory management activities

Vinamilk inventory management has two procedures for importing raw

materials, moving internal materials, and exporting completed goods. Each procedure
will include the cooperation of several departments.
Source: Vinamilk

The production planning department and the board of directors will make
production and business plans based on the objectives and goals of each year. The
production planning department will distribute spending to the factories based on the
annual production plan. Planning the production plan in line with the available
production variables, maintaining it on a regular and timely basis, and immediately
adapting to market variations such as demand, supply, economic condition, pricing,
and so on.

The buying department will be in charge of raw material purchase planning.

The purchasing department will utilize the client orders received by the sales
department and submit them to the warehouse statistics daily to determine which raw
materials are below the final safe inventory level. By the warehouse’s inventory
reception capacity and the priority of the items in the warehouse: which products need
to be imported to service the sales promotion in the future period to develop a strategy
for raw material inventory?

The raw material warehousing plan will then be sent to the coordination
department (particularly, the coordination of materials) so that this department may
coordinate Vinamilk’s trucks to pick up the supplies or arrange the time so that the
supplier's delivery truck may arrive without causing any congestion in the warehouse
When the products are delivered to the factory from the suppliers, the security will
verify the original quantity. Following that, the raw materials will be checked by the
quality control department to ensure that the arriving materials meet the pre-
established criteria. When the criteria are satisfied, items will be entered into the
warehouse, where the storekeeper and warehouse personnel will check the quantity
and arrange each type of material in the required location. Simultaneously, it will
enter raw material inventory data into the computer system to enable information
verification.

2.3 Vinamilk’s inventory management model

2.3.1 Analysis of EOQ inventory model of Vinamilk

Applying the EOQ model to calculate the optimal order quantity of Vinamilk
Company:

For the management of raw materials inventory. Currently, the company

applies the EOQ ordering model. However, because the characteristics of each
material are different as well as the packaging method of the manufacturer, supplier,
order cycle, waiting time from ordering to delivery, etc., the quantity This optimal
ordering cannot be fully compliant with the EOQ model but also from the experience
of the staff in the production planning department. In some cases, the order volume is
also dependent on the requirements of the export manager when there are situations
where the shortage of raw materials occurs during the production process as well as on
the programs of company promotions.

For many years, the demand for Vinamilk’s raw milk has been rapidly growing.

To meet this need, the firm has aggressively invested in industrial-scale farms
on the one hand and has steadily grown its purchase and development of raw milk
from homes on the other. As a result, the team decided to investigate the inventory of
raw milk from families.

EOQ formula:
√ 2×D×S
H

We call:

D = Annual demand it units of a product

S = Ordering cost per order

H = Holding cost per unit of the product

The assumptions of the EOQ model are as follows:

 Demand for inventory is stable (no change).

 The waiting time for goods from placing an order to receiving the goods is
determined and does not change.
 The company receives all orders from suppliers at the same time.
 There are only 2 types of costs: ordering costs and storage costs.
 No shortage occurs if the order is fulfilled on time, i.e. if the order is placed after
the optimal inventory is determined and the order is fulfilled on time, there will
be no status at all. Inventory shortages lead to production and consumption
disruptions.

Assume that Vinamilk annual demand for products is 300,000 units. The holding cost
is $80 per year involves keeping a product in stock and the ordering cost per order is
$50,000.

So we have: D = 300,000 units; S = $50,000; H = $80

Thus, EOQ =
√ 2 ×300,000 × 50,000
80
= 19,365 units

This depicts that at the order quantity of 19,365 units per order, the company would
have minimum cost with keeping the required stock in hand.

2.3.2 Arrangement of types of inventory

For raw materials: Raw milk, imported milk powder 3, and spices are the primary
raw materials used in Vinamilk. Raw milk, in example, will be imported into cool
tank systems after being filtered for contaminants and quality checked, rather than
being separated at the raw material warehouse. The majority of the remaining raw
materials will be stored in a cool, normal-temperature environment, and the firm will
adhere to the FIFO (First In, First Out) concept to assure the quality of their resources.
With many sorts of materials, the materials that are entered into the warehouse first
will be utilised in the production process first. Depending on the form of the material
warehouse, materials are kept on huge shelves with 4-6 storeys. Those having a high
weight will be placed at the bottom, while materials with a lower weight will be
placed on top. The shelf number, cell number, name and code of the material, and
these orders are stored in the warehouse management diagram system on each shelf
cell. As a result, while looking for raw materials that are in stock or out of stock, we
enter the product name or item code into the system, and the system displays the
location of such raw materials, saving us a lot of time. Set up and remove extra parts.

For Finished goods inventory: In addition to sorting by rows, shelves, and order of
review, like with raw material inventory, this finished product inventory is split into
four major regions to preserve ice cream: pasteurized milk products, yogurt...
Furthermore, if the inventory exceeds the warehouse’s capacity and requires the hiring
of an outside warehouse, Vinamilk will prioritize its own warehouse for completed
goods inventory and the rented warehouse for raw material inventory.

How to manage inventory based on the ERP (Enterprise Resource Planning) model:
On the ERP system, there will be a corresponding position on the ERP system at how
many lines, which lot of products, how many shelves, and the order of shelves for
each item code and real location in the warehouse.

3. Strengths and Weaknesses of Vinamilk’s inventory management model

3.1 Strengths

First, let’s look at Vinamilk’s inventory management operations. Inventory

management efforts at Vinamilk are closely coordinated and flexible across divisions.
Inventory management divisions such as production planning, sales, customer service,
buying, warehousing, and coordination are all coordinated closely and harmoniously
with one another in the inventory import and export operations, as well as the capacity
to improvise creatively in issue solutions.

Second, Vinamilk’s inventory management operations include proper computations.

Vinamilk’s inventory management operations are typically in accordance with
changes in external variables such as each economic market, customer demands, and
internal ones such as corporate procedures operational mines, capital sources,
company stocking circumstances, supplier supply capabilities, the delivery cycle
system, and the commercial characteristics of the commodities.

Third, inventory management employs a versatile mix of optimum ordering model

EOQ and employee experience. To optimize cost and time, the EOQ model is used for
raw material inventory, which is modified for other influencing variables such as
business environment, ordering cost, and so on. When it comes to completed product
inventory, there is some leeway to deal with when the items in stock are insufficient to
satisfy demand, and the needs of partners establish fairness amongst partners.

Fourth, the inventory of raw materials and completed items are efficiently coded,
stored, and transported. The operations of inventory storage, digitization, and
transportation make it easier for Vinamilk to prepare goods for delivery to consumers
while also minimizing mistakes in goods inspection. Furthermore, the storage and
transportation of products should comply with the characteristics of quality goods to
assure the quality of the product when delivered to the client.

Finally, inventory management is accomplished through the use of ERP technology.

Vinamilk’s inventory management is very precise and rapid thanks to ERP enterprise
resource planning software. Furthermore, using the ERP system will improve
communication between factories, distribution hubs, and partners, providing an edge
in emergency circumstances.

3.2 Weaknesses

For starters, Vinamilk’s product classification has not been improved for
efficiency. In particular, the firm only categorized items according to the supply chain,
such as raw materials, semi-finished products, and completed products, but only in
raw materials. materials and finished goods with the highest density, medium density,
or lowest density As a result, it will result in inefficiencies in allocating resources to
invest in inventory such as high-value products, such as things with huge numbers but
low profitability.

Second, forecasting has not yet resulted in optimal efficiency. Forecasting is

one of the most essential responsibilities of inventory management; if the forecasting
is inaccurate, it will result in a poor scenario. Too little inventory for sales and
manufacturing, or too much inventory, incurs substantial expenses for the company.

Moreover, although FIFO mitigates inflation leading to higher profits, it also

leads to higher Vinamilk income tax.
 REFERENCES

1. Vietnam Dairy Products Joint Stock Company | (vinamilk.com.vn)

2. The interim financial statements for the second quarter and six months ended June
30, 2022 of Vinamilk | (shorturl.at/fGHJL)

3. Investopedia - How Is the Economic Order Quantity Model Used in Inventory

Management? | (shorturl.at/iALU4)