ORDER DECISISON SUPPORT SYSTEM BASED ON STOCK TRACKING KUMATHA VELLI D/O MURUYANDY

ORDER DECISISON SUPPORT SYSTEM BASED ON STOCK TRACKING KUMATHA VELLI D/O MURUYANDY A project submitted in partial fulfillment of the requirement for the award of the degree of Master of Science (Information Technology Management) Faculty of Computer Science and Information System University Technology Malaysia APRIL 2007

I hereby declare that I have read this project report and in my opinion this thesis is sufficient in terms of scope and quality for the award of the degree of Master of Science (Information Technology Management) Signature : Name of Supervisor : Associate Professor Dr. Naomi Binti Salim Date : April 2007

iii ACKNOWLEDGMENT My sincerely gratitude goes to my supervisor, Dr. Naomi Salim, for being a great supervisor and guider to me throughout the period I carried out this project. Her logical and constructive criticisms have sharpened my understanding on management concept using ICT strategies. I also owe my deep gratitude to the staffs and Managing Director of Wellward Shopping Center, Mr. Chang, who showed me a high level of cooperation and support. Indeed, without their cooperation this study would have been hindered. My deepest thanks go to my parents. Their influence made me realize the importance of education from the very start. I could not give enough thanks to them for the great love and support that they have given. I also owe my gratitude to all my lecturers and non-academic staffs for helping me finishing my project. They are invaluable asset to UTM. My co-students and friends, too numerous to mention have given me moral support to finish my project successfully.

iv ABSTRACT Inventory Management is a process, operation technique and continuous activity to control and manage the flow of inventory. Effective inventory management is imperative for successful operation of business cooperatives. Inventory management requires continuous decision making. Cooperative managers can increase the probability of making good inventory management decisions by using fundamental inventory management strategies implemented as part of an organized plan. Therefore, the project is to implement strategic Order Decision Support System (ODSS) in Inventory Management at Wellward Shopping Center. Order Decision Support System will propose new stock ordering decision for the use of Managing Director of Wellward. From the initial finding, it is found that weakness in order making decision causes the out-of-stock problem. Therefore, Flexible Order Quality (FOQ) that has been proposed from Economic Order Quantity (EOQ) will be used as a model to recommend ordering decision. Order Decision Support System adopted Enterprise Application Integration (EAI), which integrates all the inventory management application in Wellward. There are four main stages in decision making process that will be utilized by Order Decision Support System. The stages are Intelligence, Design, Choice and Implementation. ODSS also analyze the sales record and come out with sales report that helps the management team identify most common or popular items.. Hopefully, Order Decision Support System can help the Wellward management team to reduce the cost of storing and purchasing stocks, the volume of hazardous waste requiring disposal, and the costs associated with waste disposal.

v ABSTRAK Pengurusan inventori merupakan satu proses, teknik operasi dan juga aktiviti berterusan yang digunakan untuk mengawal dan menguruskan aliran inventori, untuk memastikan stok-stok berada dalam keadaan yang baik. Pengurusan inventori yang effektif menyumbang kepada operasi urusan perniagaan yang berjaya kerana ia memerlukan kemahiran membuat keputusan yang berterusan. Pengurus kepada sesuatu organisasi boleh meningkatkan kebolehan membuat keputusan dalam pengurusan inventori, iaitu dengan menggunakan strategi asas pengurusan inventori yang dilaksanakan sebagai salah satu bahagian dalam rancangan organisasi. Dengan itu, kajian ini dijalankan dengan mengimplemenkan Sistem Bantuan Keputusan Penempahan (SBKP) di Wellward Shopping Center. Sistem Bantuan Keputusan Penempahan akan mencadangkan keputusan untuk penempahan stok baru kepada Pengurus Wellward. Daripada kajian awal yang telah telah dijalankan, kekurangan kemahiran membuat keputusan penempahan stok, menimbulkan masalah kehabisan stok awal. Flexible Order Quality (FOQ) yang diubahsuai daripada Economic Order Quantity (EOQ) akan digunakan sebagai model untuk mencadangkan keputusan penempahan. Sistem Bantuan Keputusan Penempahan sebenarnya mengaplikasikan konsep Enterprise Application Integration (EAI), di mana ia akan menyepadukan semua aplikasi yang terlibat dalam pengurusan inventori di Wellward. Terdapat empat fasa dalam proses membuat keputusan yang digunakan oleh Sistem Bantuan Keputusan Penempahan, iaitu Kepintaraan, Rekabentuk, Pilihan dan Implimentasi. ODSS juga menganalisa rekod jualan dan menghasilkan laporan jualan yang membantu pihak pengurusan mendapat tahu barangan yang popular. Semoga Sistem Bantuan Keputusan Penempahan yang akan dibangunkan oleh pengkaji dapat membantu pihak pengurusan Wellward dalam mengurangkan kos pembelian dan penyimpanan stok dan pengurangan kuantiti dan kos stok yang rosak.

vi TABLE OF CONTENTS CHAPTER TITLE PAGE TITLE DECLARATION DEDICATION ACKNOWLEDGEMENT ABSTRACT ABSTRAK TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES LIST OF APPENDIX i ii iii iv v vi vii xii xiii xv CHAPTER 1 PROJECT OVERVIEW 1.1 Introduction 1 1.2 Background of Study 3 1.3 Statement of Problem. 5 1.4 Objective of Project 6 1.5 Scope of Project 6 1.6 Importance of Project 7 1.7 Summary 8

vii CHAPTER 2 LITERATURE REVIEW 2.1 Introduction 9 2.2 Inventory 10 2.2.1 Definition 11 2.2.2 Categories of Inventory 12 2.2.3 Types of Inventory 13 2.2.4 Perpetual and Periodical Method 14 2.2.5 Inventory Management 17 2.2.6 Inventory Management Concept 18 2.2.7 Flexible Order Quantity 26 2.3 Enterprise Application Integration 28 2.3.1 Integrating Backward: Extending the Supply Chain 28 2.3.2 Integrating Forward: Meeting Demand and Managing Customers 30 2.3.3 Integrating Upward: Supporting Managers and Executives 32 2.3.4 Integrated ODSS 34 2.4 Decision Support System 35 2.4.1 Definition 36 2.4.2 Characteristic 36 2.4.3 Components 37 2.4.4 Category / Type 39 2.4.5 Decision making process 40 2.5 Organizational Study 43 2.5.1 OIA Global Logistics 43 2.5.2 Bursary Department UTM 44 2.5.4 AHOKU ELECTRONIC 45

viii CHAPTER 3 METHODOLOGY 3.1 Introduction 49 3.2 Project Methodology 49 3.2.1 Planning Phase 51 3.2.1.1 Project Identification and Selection 51 3.2.1.2 Project Initiation and Planning 51 3.2.2 Analysis Phase 51 3.2.2.1 Determining Requirements 51 3.2.2.2 Structuring Requirements 52 3.2.2.3 Alternative Generation and Selection 52 3.2.3 Design Phase 52 3.2.3.1 Building Mathematical Model 52 3.2.3.2 Designing the Human Interface 53 3.2.3.3 Designing Database 53 3.2.3.4 Developing Prototyping 53 3.2.4 Implementation and Operation Phase 54 3.4 Hardware and Software Requirements 58 3.5 Project Schedule 59 3.5 Summary 60 CHAPTER 4 ANALYSIS AND DESIGN 4.1 Introduction 61 4.2 Organization Analysis 62 4.2.1 Existing IS/IT 63 4.2.2 Analysis of Existing System 64 4.2.3 Existing System s Activity and Data Model 68 4.4 User Requirements 76 4.4.1 Functional Requirement 76 4.4.2 Non - Functional Requirement 77

ix 4.5 Designing ODSS 79 4.5.1 Activity and Data Model 79 4.5.2 Design of ODSS Architecture 97 4.5.3 Database Design 97 4.5.4 Interface Design 98 4.6 Summary 99 CHAPTER 5 IMPLEMENTATION AND TESTING 5.1 Introduction 100 5.2 System Implementation 100 5.2.1 Software Installation 101 5.2.2 Database Development 101 5.2.3 Module Programming 102 5.2.4 Module Integration 104 5.3 Testing 104 5.3.1 Unit Testing 104 5.3.2 Integration Testing 107 5.3.3 System Testing 108 5.3.4 User Acceptance Testing 109 5.4 Summary 109 CHAPTER 6 ORGANIZATIONAL STRATEGY 6.1 Introduction 110 6.2 Planning Organizational Changes 110 6.2.1 Conversion Plan (Technical Issue) 112 6.2.2 Change Management Plan Organizational Issues 113 6.3 Activities after Implementation 114 6.4 Benefit of implementing the ODSS in Wellward Sdn. Bhd. 115 6.5 Summary 116

x CHAPTER 7 DISCUSSION AND CONCLUSION 7.1 Introduction 117 7.2 Achievements 117 7.3 Constraints and Challenges 119 7.4 System Strengths 120 7.5 System Weaknesses 120 7.6 Lessons Learned 121 7.7 Further Work 122 7.8 Conclusion 123 REFERENCES 124 APPENDIX 126-140

xi LIST OF TABLES TABLE NO TITLE PAGE 2.1 Comparison of perpetual method and periodical method 16 2.2 Characteristic of DSS-Information Processing System 37 2.3 Explanation of decision making stages and activities involve in each stages 42 2.4 Comparison of organizational study 47 3.1 Activities in Project Development Phase 55 3.2 Software required to developing the system. 58 4.1 Activities that involves in inventory management 67 4.2 Functional Requirements for ODSS 77 4.3 Non-Functional Requirement for ODSS. 78 5.1 Black Box Testing of ODSS 105 5.2 System Testing 108

xii LIST OF FIGURES FIGURE NO TITLE PAGE 2.1 Topics that be discussed in Literature Review 10 2.2 Operating cycle of goods in retailing business. 12 2.3 Process that produces the three type of inventory. 12 2.4 The FOQ Model 27 2.5 The Supply Chain 28 2.6 Extended Supply Chain Relationship 33 2.7 The specific types of Information system that correspond to each organizational level. 35 2.8 The components of a DSS 38 2.9 The decision making process 41 2.10 Main Interface of Andaris 44 2.11 Browse by Delivery Date screen page of IMS 46 2.12 Transaction Authorization Updates screen page 46 3.1 The rough draft of overall project development methodology 50 3.4 The Prototyping Method 54 4.1 Organization Structure of Wellward Sdn. Bhd. 62 4.2 Cashier system at cashier counter 63 4.3 Scanning bar code of an item 64 4.4 Business flow that involve in Wellward 65 4.5 Activities in Inventory Management 65 4.6 Use Case Diagram 67 4.7 Use Case Description for Record Stock Purchasing 68 4.8 Use Case Description for Manage and Organize Stock 69

xiii 4.9 Use Case Description for Record Stock Sales 70 4.10 Use Case Description for Check Stock Level 71 4.11 Use Case Description for Make Order Decision 72 4.12 Use Case Description for Order New Stock 73 4.13 Class Diagram 75 4.14 Framework of ODSS 79 4.15 Use Case Diagram 80 4.16 Use Case Description for Record Stock Purchasing 81 4.17 Use Case Description for View Stock Report 82 4.18 Use Case Description for Update Stock Record 83 4.19 Use Case Description for Record Sales 84 4.20 Use Case Description for Enter FOQ model s data 85 4.21 Use Case Description for Approve Ordering Decision 86 4.22 Use Case Description for Send Order Form 87 4.23: CRC Card for Inventory officer 89 4.24 CRC Card for Managing Director 90 4.25 CRC Card for Stock Supervisor 91 4.26 CRC Card for Cashier 92 4.27 CRC Card for Stock 93 4.28 CRC Card for Order Form 94 4.29 Class Diagram 95 4.30 The Integration between Data source and Database in Common Gateway Interface of ODSS. 97 4.31 Hierarchic of ODSS Interface 98 5.2 Coldfusion script that connects database and systems module 102 6.1 Implementation Change 111 6.2 Elements of Migration Plan 111

xiv LIST OF APPENDIX APPENDIX TITLE PAGE A Report of Worldwide Examination on Retail Out-of-Stock by Grocery Manufacturers of America 126 B-1 Involvement of Inventory in Supply Chain 127 B-2 Inventory Management Strategies 128 C Gantt Chart 129 D Photos of Wellward Shopping Center 130 E Sample Invoice 131 F Order Form 132 G Sample Sales Report 133 H As-Is Activity Diagram 134 I As-Is Sequence Diagram 135 J ODSS Activity Diagram 136 K ODSS Sequence Diagram 137 L ODSS State Chart Diagram 138 M Database Structures 139 N Site Map Interface 140 O User Manual 141 P User Acceptance Test & Result 142

1 CHAPTER 1 PROJECT OVERVIEW 1.1 Introduction The cardinal objective of most business organizations is the delivery of goods and/or services to consumers at given prices with intent of earning profits. Indeed, the objective of producers of goods and services goes beyond mere returns on investments to that of profit maximization. Profit making is the primary motivator of any business investor and it is the profit indices that the investors use in measuring the growth and viability of any business concern. Apart from this traditional objective, modern management concerns also thrive to ensure a perpetual existence of business enterprises. The going concern concept is very central in the mind of every prudent business manager and savvy investor. Staying afloat in business invariably calls for satisfying the consumers at all time and maintaining effective products and/or services market demand. Given this vital role of profits in the success of business organizations and the need to satisfy the customers, management necessarily formulate policies which determine business lines that are based on the needs of the prospective consumers. Most often such entrepreneurial policies tend to consider the prices at which products should be made available to the market.

2 Besides, many factors, external and internal, wield strong influence on business organizations and thus conflict with the desired corporate profit objective. The external influence ranges from government policy towards products or services consumption, social, cultural and religious life of the major consumers of the product and services, general state of the national economy which determines the people s purchasing power, and the cut-throat competition which is common in the market place. Moreover, the organizational politics, resistant to change, reluctant to adopt viable new technologies, and inadequate managerial attention given to key factors that relate directly with the corporate profit constitute the internal constraints to profit maximization and enhancement of business investments. The external factors and the problem of organizational culture and politics are not the main focus of this study. As it could be accepted, inadequate attention given to factors that directly affects corporate profit often has indiscernible impact on corporate profit if it is let loosed. In this study one of such factors which captured the interest of the researcher and informed this study is improper inventory management in small and medium-scale enterprises. It is apparent that many small and medium-scale businesses in Malaysia do not give heed to adequate inventory management even though they desire to maximize their profit. This is evidence given that many organizations in this class of enterprises do not use inventory management software in analyzing and reporting their inventory status on timely basis. Specifically, by achieving accurate visibility and effective control over inventory, and setting prices on a customer-by-customer basis, it becomes possible to reduce operating costs and achieve the fast and efficient order fulfillment that encourages the customers to be loyal to on organization. Reduction in operating cost invariably boosts the corporate profit given that prudent cost minimization indirectly means profit maximization. In this study the researcher proposes an easy-to-use stock analysis tools and flexible reporting capabilities that deliver rich access to detailed, consolidated inventory and ordering information as well as analyzing of the daily sales. The decision support

3 system approach and other related information science theory form the main theoretical foundation behind the development of this inventory management tool. This tool is not only expected to solve the problem of out-of-stock, it would also give the user some competitive advantage over other rivalries. In order to capture the domain business concepts in stock intensive organizations, the case study approach is adopted and Wellward Supermarket is used as a case study. The system development procedures, implementation and testing of this inventory management tool will be done in partnership with this organization. 1.2 The Background of the Study Wellward Supermarket, the case study organization, is medium-scale enterprise that engages in selling goods like groceries, provisions, stationery item, and other daily needed items. Given the stock varieties required in the Supermarket, the organization necessarily maintains various sources of supplies. It retails these goods to numerous customers from all works of life. Indeed, supermarket is an inventory intensive business, which demands an adequate inventory mix and stock management if customer s satisfaction and loyalty is to be achieved. However, such inventory management is hardly achieved through manual inventory keeping process. Manual inventory system has an embedded out of stock problem and sometimes a total elimination of a product-type from the inventory mix. More often than not, these problems can cause the organization to lose its customers. This happens because a customer that likes a particular product that an organization has forgotten to replenish can go to other shops and cease to become a loyal customer. Perhaps, it is hard to believe that most medium-scale stock intensive organizations like Wellward Supermarket, under hyper-competitive environment, still maintain manual inventory system despite all the associated problems. According to

4 Silver et al. (1998), improper inventory management can seriously distort the corporate profit of an organization. Of course, the decline in profit could not be avoided where inventory is loosely managed since it contributes a reasonable percentage of operational cost in a supermarket and other inventory intensive organizations. Such decline invariably has a negative impact on gross profit of an organization. The inventory officers often face some problems in tracking the inventory where it is done manually. In which case they depend on the bills and the physically count of items when they want to track inventory. This in most cases causes stock prediction and order problems, given that the inventory officers need to consider and analyze some important factors such as sales rate, quality of the items, and the demand for items before they make order. The officers also have some problems in determining the quantity of the item to be ordered at a certain season where the customer demands varies from season to season. The officer needs to take a lot of time before an item is ordered and they will receive the supplies sometimes very late. Therefore they fail to maintain the efficient inventory level and the stock prediction is most often done with high level of uncertainty. Moreover, failure to place a timely order because of the long and complicated manual inventory processes makes out of stock inevitable. Indeed, Wellward Supermarket may not be exonerated from these problems in as much as it maintains manual inventory system. In practical sense, this problem will decrease the sales of Wellward Supermarket. (Please refer to Appendix A for report of Worldwide Examination on Retail Out-of-Stock by Grocery Manufacturers of America). Besides that, inefficient order would certainly increase the ordering and maintaining cost of the stocks. Placing few orders with large product quantity will definitely lower order processing costs; however, it will increase the inventory maintenance cost such as place to store the stock items. On the other hand, placing many orders with small quantities will decrease inventory maintenance cost because the average inventory level will be small, but this will increase order processing costs (James,1994).

5 The proposed ODSS system would enable adequate inventory management, not only in Wellward but in other inventory intensive organizations, especially those of similar trade. This system is expected to update the inventory record at the point of sales when the product bar code of an item is scanned into the system. It has the capabilities of analyzing the daily sales and generating the sales and inventory report. At any point in time, the system would display an inventory level when queried. This would indicate when the item should be reordered or not, and it will also show the economic order quantity (EOQ) together with maximum and minimum reorder levels. 1.3 Statement of the problem. Given the highlighted nature of inventory management in many of the small and medium scale enterprises in Malaysia, the questions which one would possibly ask are: i. How do small and medium-scale organizations that involve in stock intensive businesses bring their inventory cost to optimum level? ii. How do they keep track of numerous stock items in their possession with the aim of avoiding overstock or stock-out problem? iii. Can Decision Support System enhance inventory management and thus provide means of sales analysis and forecasting? iv. How can effectiveness of such system be evaluated in order to encourage its usage? This study attempts to provide answers to these questions and other related ones. The researcher intends to use a relevant system development methodology to develop an order decision support system (ODSS) which would enhance adequate inventory management and control. The tool will be tested practically at Wellward Supermarket, the medium-scale business organization chosen as a case study.

6 1.4 Objective of the project The objective of the study are To design and develop stock trading analysis algorithm, which would enable adequate inventory control and sales analysis and forecast in inventory intensive small and medium scale enterprises. To provide the tools that would generate inventory report for easy stock supervision by inventory officers. To enable analyses of sales statistic, sales forecasting and sales projection with aim of meeting future sales order in time. 1.5 Scope of the project In developing this project, I have determined and set the limit and scope for the case study of this project. The scopes are: i. The analysis will be conducted at Dry Food Department of Wellward Shopping Center, Parit Raja, Batu Pahat, Johor, Malaysia. ii. The item that will be analyzed is daily food items (dry food) that always have demand from the customers. iii. The system that will be developed only will be used by top management officer of inventory department and research & development department. iv. The sales analysis report includes daily sales statistic for every item, sales rate report on different seasons and demand statistic for each item.

7 1.6 Importance of project According to estimates from the Grocery Manufacturers of America on February 28, 2005 (Appendix A), over $6 billion dollars is drained from the retail industry every year in the U.S. because of out-of-stocks. The out-of-stock problem remains one of the central barriers to improving profits and margins for medium-scale enterprise and retailers alike. Therefore, Wellward Supermarket as well as other medium-scale enterprises has similar problem since out-of-stock hinders improve in sales. By implementing ICT strategies in Wellward supermarket, specifically ODSS system, it is hoped that it can bring some effective and efficient improvement to their sales and inventory management. Hence, this project is expected to overcome the stockout problem in inventory intensive organizations, which Wellward is one of them. The project will give a new management concept to the inventory and sales section in business field. This inventory management system implies efficient management skills in the organization and the decision support technique gives some intelligent and expert skills to the organization staff. Some benefits of the system are : i. Propose effective management strategies to the top management. ii. Give the business a superior competitive advantage, with easy-to-use stock analysis tools and flexible reporting capabilities that deliver rich access to detailed, consolidated inventory and ordering information. iii. Empower employees with advanced search capabilities that provide quick, easy access to the inventory information they need, and one-time stock and pricing entry that provides accurate and timely information throughout the system. iv. Generate efficient report and statistic of sales records. v. Offer better service and improve customer satisfaction with accurate inventory control and customer-specific pricing and promotions. vi. Gain tight control over processes using a cradle-to-grave view of serial and lot numbers to quickly trace where and when the item appears in bills of materials, customer orders, or other transactions. vii. Pervade information technology and communication (ICT) concept in business organization.

8 1.7 Summary In this first chapter a brief introduction about the project and how the project is going to be implement has been discussed. The main objective of the project is To design and develop stock trading analysis algorithm, which would enable adequate inventory control and sales analysis and forecast in inventory intensive small and medium scale enterprises. The problem background and statement is also has been discussed in this chapter to give an introduction to the case study of the project and to explain why this project has been proposed. The main problem statement that has been identified is How do small and medium-scale organizations that involve in stock intensive businesses bring their inventory cost to optimum level. The objective, scope and the importance of this project have also been pointed out. By developing the project successfully, the objective and aim of the project can be achieved.

9 CHAPTER 2 LITERATURE REVIEW 2.1 Introduction In this second chapter the study centers on the review of the literature on this subject. The chapter presents a brief introduction and information to the curious readers and researchers on the area of inventory management and how information system could facilitate such management. The aim is to broaden the understanding of the interested readers and also unfold the uncovered areas in literature which the study attempts to make a useful contribution. The sub-topics that will be discussed in this chapter are: i. Inventory ii. Decision Support System (DSS) iii. Integration iv. Organizational Study The aspects that will be analyzed and discussed in each sub-topic is shown in Figure 2.1. All the information gathered will be used as guide in developing the framework necessary in execution of the whole project. This information was helpful in establishing the theoretical background of inventory management and DSS.

10 Literature Review Inventory Decision Support System Integration Organizational Study Definition Category Type Perpetual & Periodical Inventory Inventory Management Categories/ Type of decision Making Stages of Decision Making Decision Making Process Modeling Backward Integration Upward Integration Integrated Integration Integrated ODSS OIA Global Logistics UTM, Bursary Department AHOKU Electronic Inventory Management Concept Figure 2.1: Topics that will be discussed in Literature Review. 2.2 Inventory Inventory represents a significant investment of capital for most companies. Inventory ties up money that could be used more productively elsewhere. Thus, effective inventory management offers the potential for significant cost savings.