National Institute Of Fashion Technology

OPERATIONS RESEARCH
Assignment no. 3

INVENTORY MANAGEMENT AT MACY’S

Submitted to: Submitted by:

Prof. Chakrapani Mubeen Ahmed
MFM, Semester 3rd
INTRODUCTION
Inventory of materials occurs at various stages and departments of an organization. A
manufacturing organization holds inventory of raw materials and consumables required
for production. It also holds inventory of semi-finished goods at various stages in the
plant with various departments. Finished goods inventory is held at plant, FG Stores,
distribution centers etc. Further both raw materials and finished goods those that are in
transit at various locations also form a part of inventory depending upon who owns the
inventory at the particular juncture. Finished goods inventory is held by the organization
at various stocking points or with dealers and stockiest until it reaches the market and end
customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare
parts to service the products. Defective products, defective parts and scrap also forms a
part of inventory as long as these items are inventoried in the books of the company and
have economic value.

Types of PROCESS OUTPUT

Inventory by
Function INPUT
Raw Materials Work In Process Finished Goods
Consumables required Semi Finished Finished Goods at
for processing. Eg : Production in various Distribution Centers
Fuel, Stationary, Bolts stages, lying with through out Supply
& Nuts etc. required various departments Chain
in manufacturing like Production, WIP
Stores, QC, Final
Assembly, Paint Shop,
Packing, Outbound
Store etc.
Maintenance Production Waste and Finished Goods in
Items/Consumables Scrap transit
Packing Materials Rejections and Finished Goods with
Defectives Stockiest and Dealers
Local purchased Items required for production Spare Parts Stocks &
Bought Out items
Defectives, Rejects
and Sales Returns
Repaired Stock and
Parts
Need of Inventory:

The inventory in any business is maintained to decrease the set up costs and the shortage
costs. If the demands of the customers are not fulfilled then in then it may result in the
loss of their good wills. If the orders are cancelled then it results in the loss of the
business. Thus, there is always a need of inventory for the smooth running of any
business.
Advantages and Disadvantages of Inventory:
Advantages:
1. The economics of production with the large run sizes.
2. The smooth and efficient running of the business.
3. The economics in transportation.
4. The advantage of price discounts by bulk purchasing.
5. Faster and adequate service to the customers.
6. Profit from speculation in the market where price are expected to rise.

Disadvantages:
1. Warehouse rent.
2. Interest on invested capital.
3. Physical handling.
4. Accounting.
5. Depreciation and determination.

Inventory Management:

In any business or organization, all functions are interlinked and connected to each other
and are often overlapping. Some key aspects like supply chain management, logistics and
inventory form the backbone of the business delivery function. Therefore these functions
are extremely important to marketing managers as well as finance controllers.
Inventory management is a very important function that determines the health of the
supply chain as well as the impacts the financial health of the balance sheet. Every
organization constantly strives to maintain optimum inventory to be able to meet its
requirements and avoid over or under inventory that can impact the financial figures.
Inventory is always dynamic. Inventory management requires constant and careful
evaluation of external and internal factors and control through planning and review. Most
of the organizations have a separate department or job function called inventory planners
who continuously monitor, control and review inventory and interface with production,
procurement and finance departments.
Inventory Investment Control Inventory investment control is accomplished
in two ways:
1. Prompt elimination of overstocked items: Whenever a particular item is overstocked,
the overstock should be reduced as promptly as possible. Naturally, the most effective
and profitable way is to sell it to customers, even at a discount. However, there are other
possibilities. There may be a wholesale market available for certain kinds of inventory.
Excessive consumer goods inventories are often sold to "bargain basements" or
warehouse outlets. Perhaps you can even arrange wholesale sales to a competitor.
Frequently, it is wiser to scrap inventory that shows no sales activity for an extended
period of time. In this way, you reduce a misleading overstatement of inventory on your
company's books. At the same time, you make space available for inventory that can be
sold at a profit.
2. Inventory replenishment: The key to successful inventory management is adherence to
procedures for inventory replenishment. Your ability to anticipate customer demand for
certain items will help you plan your inventory purchases so that sufficient stocks are on
hand to accommodate sales volume without excesses that cause other problems. Planning
your purchases will also help you avoid shortages that can only be filled through
forfeiture of discounts or absorption of premium shipping charges.

Determining purchasing requirements involves answering two questions:

o What to buy?
o How much to buy?
Both questions can be answered by establishing an inventory target for any item you
carry expressed as so many days', weeks', or months' sales.

Variables in an Inventory Problem:

The variables associated with the inventory problems are classified into two categories.
The Controlled variables
The uncontrolled variables

The Controlled Variables – The variables that may be controlled, separately or in

combination are following:
1. The quantity acquired – By purchase, production, or some other means. The decision
maker may have a control over the production or purchase level.
2. The frequency of timing of acquisition – The decision maker may have control over
how often or when the inventory should be replenished.
3. The stage of completion of stocked items – The decision maker may have a control
over the stage which the unfinished items are held so that there is no delay in supplying
customers.

The Uncontrolled Variables – The variable that may not be controlled in an inventory
problem are divisible into cost variables and others.
The main cost variables involved in inventory problems are as follows:
1. Holding or storage cost – The costs associated with the storage of the inventory until it
is or used are known as the holding or storage costs.
2. Set up (or replacement or ordering) costs – This is the cost associated with the placing
of an order for purchasing goods, or it is the cost of setting a machine before it starts
production. This cost may depend on the quantity of goods purchased because of price
breaks or quantity discounts.

Besides these cost variables there are other variables that may not be controlled in an
inventory problem:

1. Demand – Demand is the number of items required per period which is not necessarily
equal to the amount sold as some demand may go unfulfilled because of storage or
delays.

The demand may be of two types:

o Deterministic Demands– If the number of items required (i.e. demand) in a
subsequent period of time is known exactly then such demand are called deterministic
demands
o Non deterministic Demands – If the demands over a subsequent period of time is not
known with certainty then such demands are called non – deterministic or probabilistic
demands.
2. Lead Time – The time gap between the time of placing an order or the starting of the
production and the time of arrival or delivery of goods to the inventory is called Lead
Time. Also the time gap between the time of demand and the time of filling the demand
from the inventory is called lead time. If this time is known (constant) and not zero then
one may order in advance by an amount of time equal to the lead time. If it is a variable
i.e., known only probabilistically than the question of when to order is difficult.
3. Amount Delivered – The supply of goods may be instantaneous or spread over a
period of time.

INVENTORY MANAGEMENT AT MACY’S

Macy's, Inc., originally Federated Department Stores, Inc., is an
American holding company headquartered in Cincinnati, Ohio. It is the owner
of department store chains Macy's and Bloomingdale's, which specialize in the
sales of clothing, footwear, accessories, bedding, furniture, jewelry, beauty
products, and housewares; and Bluemercury, a chain of luxury beauty products
stores and spas. As of 2016, the company operated approximately 888 stores in
the United States, Guam, and Puerto Rico. Its namesake locations and related
operations account for 90% of its revenue.
According to Deloitte, Macy's, Inc. is the world's largest fashion goods retailer
and the 36th largest retailer overall, based on the company's reported 2010 retail
sales revenue of $25 billion
Macy’s, Inc. is one of the nation’s premier retailers. With fiscal 2016 sales of
$25.778 billion and approximately 140,000 employees, the company operates
more than 700 department stores under the nameplates Macy’s and
Bloomingdale’s, and approximately 125 specialty stores that include
Bloomingdale’s The Outlet, Bluemercury and Macy’s Backstage. Macy’s, Inc.
operates stores in 45 states, the District of Columbia, Guam and Puerto Rico, as
well as macys.com, bloomingdales.comand bluemercury.com. Bloomingdale’s
stores in Dubai and Kuwait are operated by Al Tayer Group LLC under license
agreements. Macy’s, Inc. has corporate offices in Cincinnati, Ohio and New York,
New York. Prior to June 1, 2007, Macy’s, Inc. was known as Federated
Department Stores, Inc. The company’s shares are traded under the symbol “M”
on the New York Stock Exchange.

Macy’s is recognized as a retail industry leader in developing private brand

merchandise that differentiates the assortments in our stores and delivers
exceptional value to the customer. Merchandise for each private brand, available
“Only at Macy’s,” is developed to appeal to a certain customer lifestyle and is
supported with marketing programs that create a precisely defined image. Our
brands have fully developed brand profiles targeted to specific consumers and
are supported with national advertising and branded in-store environments.

Alfani is the modern, wear-to-work brand for the style-conscious woman and
man. The brand offers head-to-toe dressing that translates from day to night, no
matter the occasion. Offering both elevated investment pieces and core staples
for everyday dressing, the brand offers a perfect solution to the career-minded
customer.

Bar III is for the young, fashion-savvy millennial customer who wants modern
style for the workplace and is seeking a first wear-to-work wardrobe. The brand
features the latest trends mixed with core wardrobe builders to allow the
customer to create versatile looks that work from office to social outings.

Charter Club is a brand made up of new modern classics for the woman whose
style is both polished and timeless. The brand offers a versatile collection of well-
curated pieces that work together, taking the customer from work to weekend in
style.
Club Room offers classic apparel for the modern man. The foundation of the
brand lies in its offering of perennial, casual-preppy classics that are appropriate
for both work and weekend. These iconic items – the polo, the khaki pant, the
cashmere sweater – are wardrobe staples that he turns to season after season.

First Impressions is a children’s brand offering beautiful, colorful and trend-right

clothing for newborns and infants. First Impressions Play offers mix-and-match
separates for boys and girls. The “satin hanger” collection offers occasion
dressing for “showing off the baby” in fine fabrics and time-honored details – a
favorite choice for those giving gifts.

The perfect blend of style and practicality, Giani Bernini is a modern classic
brand featuring fashion accessories crafted in quality materials. The brand’s
offerings include handbags, small leather goods, sterling silver jewelry, and
shoes, all infused with a classic sensibility and modern details. Handbags feature
a wide assortment including genuine leather, all with highly functional, well-
organized interiors.

Hotel Collection offers stylish, sophisticated home goods to the modern customer
who expects the highest quality and doesn’t want to compromise. The collection
features versatile, modern and colorful pieces that balance casual luxury and
contemporary style.

Ideology is an activewear brand for the entire family offering versatile

performance apparel that combines fashion and comfort to complement an
active, healthy lifestyle. Noted for its sport bras, tanks and leggings, the brand
also offers fashion layering pieces and a line of more relaxed items, as well as
pieces for men and kids.
I.N.C International Concepts delivers accessible, of-the-moment fashion to style-
setting men and women. Inspired by the latest trends, I.N.C appeals to a
customer that is always seeking the newest and the novel. The brand offers
trend-right fashions, along with denim and more relaxed casual pieces that
complement the customer’s diverse needs.

JM Collection is designed for the confident woman with a bold sense of style and
color. The brand offers alluring outfit dressing and statement pieces, driven by
novelty knitwear and tunic silhouettes. Trend colors and prints, along with
signature embellishments, ensure that the customer maintains her bold attitude.
Originally inspired by Parisian street style, Maison Jules offers a curated
collection of classic pieces with a modern twist. The brand is designed to let the
millennial customer cultivate a playful yet stylish approach to her wardrobe.

Martha Stewart Collection is a unique brand inspired by the aesthetic wisdom

Martha has gathered throughout the years. The brand is a reflection of her taste
and style as a lifestyle authority in home decor and entertaining, offering a mix of
classically designed pieces with a modern twist, much like you’d find in her
home.

Inspired by bohemian culture, Style&Co. offers a relaxed, authentic aesthetic at

an affordable price. Stylish yet casual, the brand offers romantic blouses,
whimsical prints, textured fabrics and layering pieces that all match back to a
great pair of denim.

This brand of European-inspired menswear is characterized by luxury fabrics,

timeless silhouettes and sophisticated details. It is designed for a classic
customer who appreciates expert tailoring and builds a wardrobe of signature
pieces, be it the tailored pieces or polished casual items of the Island collection.

Created in partnership with music icon Thalía Sodi, the brand offers feminine,
eye-catching, figure-flattering clothing, shoes and accessories. Statement-
making dresses, body-enhancing silhouettes, and bottoms with unique fit
attributes create a collection that empowers women to live out loud.
Private Label Merchandise
Macy’s also develops private label goods to meet specific customer needs and to
fit a niche in our assortment. The difference between a brand and a label is
subtle but important. While Macy’s private brands target certain consumer
lifestyles and are fully supported with robust marketing and branded in-store
environments, a label is simply a name attached to a category of merchandise.
Examples of our labels include:

 Belgique
 Epic Threads
 Holiday Lane
 Jenni by Jennifer Moore
 Karen Scott
 The Cellar
 Tools of the Trade

INVENTORY MANAGEMENT AT MACY’S

Inventory management
Inventory management is very crucial for department stores such as Macy’s, Inc.
(M). An optimal level of inventory helps bring down costs, lower the instances of
inventory obsolescence, and enhance the consumer shopping experience by
avoiding out-of-stock situations.
 Key inventory metrics
It’s important for a company to handle its inventory efficiently. Inventory can be
measured by inventory turnover ratio and days inventory outstanding. Inventory
turnover ratio indicates how efficiently a company is moving its inventory. Macy’s
inventory turnover ratio declined to 3.08 in fiscal 2013, compared to 3.17 in the
prior year.

Macy’s department store peers Nordstrom, Inc. (JWN), Kohl’s Corporation (KSS),
and Dillard’s, Inc. (DDS) had inventory turnover ratios of 5.35, 3.17, and 3.20,
respectively, in fiscal 2013.
Macy’s days inventory outstanding deteriorated to 118.2 in fiscal 2013, from
116.9 in the prior year.

The Consumer Discretionary Select Sector SPDR Fund (XLY) has 1.03%
exposure in Macy’s.
Macy’s efforts to optimize inventory
Macy’s is taking several measures to improve its inventory management. The
company’s My Macy’s strategy ensures that every store has merchandise that
caters to consumer preferences in that particular locality. Under the My Macy’s
program, the company’s district merchants and planners help customize
merchandise assortments depending on local tastes and requirements. This
helps move inventory faster.

Through its store fulfillment strategy, Macy’s can ship products that are ordered
online or through other stores directly to its customers. The store fulfillment
strategy helps the company use inventory efficiently by filling orders for products
that are not available at a particular store but can be shipped directly from some
other location.

The company’s store fulfillment strategy, which was launched in 2010, is now
rolled out to all 655 Macy’s brand stores. In addition, the company has
established five dedicated fulfillment centers and expects to further increase
direct-to-consumer fulfillment capacity.