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Executive Summary

The owner, Michael King, was asked of the current problem faced by the company, and he answered Sales/Marketing. Almost every manufacturing firm's core problem is at its sales. It does not guarantee that all products produced would be sold immediately that is why the company at times incurs excess production or surplus inventory. The possible reason behind low sales might be low demand of product, high pricing, low quality output, tough competition, or simply the salesmen are not doing their part.


Low sales and surplus inventory may be solved through focusing more on current customers and finding new ones, lowering of prices to least possible, overseeing the workers in processing the output to produce high quality products and checking on the salesmen regarding their work.

Supply Chain management

Relationship to the problem

Data gathering to address it

Background of the Study

Company Profile

Golden Dragon Plastic Manufacturing is a sole proprietorship business that is founded and managed by Michael King and his wife, Cindy King. The company started at 1998, producing quality plastic bags/ poly bags to be either distributed to marketing agents or sold directly to consumers. The target market is mostly provincial customers from General Santos, Cagayan City, Iloilo City, etc. The factory is currently located at Bulacan City and employs 50-100 workers. Its 24-hours operation includes extrusion which is the conversion of raw materials to long strips of plastics, cutting which is the cutting of long strips of plastics to smaller pieces based on sizes and colors, punching which is the punching of plastic bag holders, packaging which is the packing of an amount of plastic bags to a transparent container, and delivery which is the distribution of products to its target customers.


To produce quality plastic bags that caters to the needs of the customers at a profit.


Golden Dragon Manufacturing aims to be the top quality plastic bag production nationwide.

Organizational Chart

Factory workers


Cindy King


Human Resource


Michael King

Sales/ Marketing



The plastic bags can be used for market and garbage purposes, as freezer bags, or packaging of other things as applicable. It varies among sizes (small, medium, and large) and among colors (red, yellow, blue, green, and white).

Rationale for Choice of Topic

Nowadays, manufacturing firms are all over the country. The manufacturing sector plays a significant role in our economy as it produces the goods to be supplied to the retailers and consumers. It adds to the growth of the economy and provides employment. Various studies have been made to evaluate the success of manufacturing firms. However, it had been a common dilemma that manufacturing firms at times are not able to control the internal operations and manage its inventory efficiently and effectively. A possible reason might be the poor management of the supply chain. Some may not treat the supply chain parts as interdependent with one another, or some may not even aware of its existence. The importance of supply chain management in addressing the operational and inventory concerns of manufacturing firms is that when each division is managed properly and is connected with each other, it does not only help reduce costs, but independent firms in the supply chain process would act together as one that makes it the more cohesive and beneficial for all.

Problem Statement

How can Golden Dragon Plastic Manufacturing manage its supply chain effectively that will lead to higher profit margin?

What are the factors that led to excess or surplus inventory in the firm?

Research Objectives

This study aims to:

Determine or plot the weaknesses of the firm in terms of supply chain management

Determine the effect of supply chain management in handling inventory problems

Determine ways in solving inventory problems

Importance of the Study

The results of the study would not only help the group in having awareness and understanding of the field of business and ways on how to deal with the possible problems that may arise in a manufacturing firm, but would also benefit the firm as alternative solutions would be presented to improve their operations and inventory management that would lead to higher profit margin.

Review of Related Literature

A. Introduction to Manufacturing

Over the decades, manufacturing had been present and continues to develop through time. The manufacturing sector contributes a lot to the growth of the economy as it provides employment and encourages investment in small and medium firms. There are many manufacturing firms that are located in provinces and produce outputs like plastics, clothing, footwear, furniture, canned goods, etc. The manufacturing industry may seem to be a successful venture that one can go into as it produces the goods that are needed by the consumers, but just like any other businesses, it has its ups and downs through the journey of its lifecycle.

B. What is Supply Chain Management?

Supply Chain Management is the management of multiple relationships and businesses from suppliers or providers of raw materials to the end users or customers of those processed or finished products. Managing the whole supply chain is very challenging; however, many business people wanted to have the relationship with its suppliers and customers because it is by this way that they gain power in the supply chain. An illustration would be a collaborative forecasting between a supplier and a retailer, and so as far as a manufacturer, can induce supply chain effectiveness to adjust its order and process of finished products. Firms in the supply chain will have a unified system that helps each other to forecast future demands, giving critical decision for both retailers and suppliers of products, and making a less-troubled inventory system that could incur profit margin within a period because having poor inventory turnover increases the cost and decreases the profit margin. The Supply Chain Management consists of activities such as systems management, sourcing and procurement, production scheduling, order processing, inventory management, transportation, warehousing, customer service, sales and information gathering, promotion, research and development, product design, operations management, and total system/value analysis. The objective of Supply Chain Management is to lower the investment in inventory and increase customer service.

C. Importance of Supply Chain Management

As what Mendoza and Ventura said in the conclusion part of their article "A Serial Inventory System with Supplier Selection and Order Quantity Allocation", "The importance of supply chain management in today's competitive environment forces companies to focus their attention on the study and analysis of inventory policies inclusive of their supply chain systems, rather than solving separate inventory policies for every stage involved in the system." Wherein they are saying that "many factors in today's global market have given companies competitive advantage by focusing their attention to their entire supply chain", purchasing is one of the most strategic areas in the entire supply chain as it provides immediate opportunities for reducing costs and consequently increase profits in the process. Purchasing is important given that the cost of raw materials and component parts account for majority of product cost for most industries. In this case, supplier selection should also be accounted for because the raw materials or component parts that they supply as well as the prices along with the timeliness and assurance of being able to supply the amount needed are all in their control. (Mendoza & Ventura, 2010)

D. Excess Inventory and its Causes

One major dilemma that can actually happen in a manufacturing firm is dealing with excess inventory. Excess inventory are products produced and was not able to be sold to the target market, therefore piling up along the spaces in the warehouses. Excess inventories may be dead, slow-moving, or ruined. One of the causes of excess inventory would be the inaccuracy of inventories due to poor management of supply chain. There could be multiple items that are involved within a cycle of a supply chain process of a firm that leads to overlook of inventory records. The excess inventory would also occur while having inappropriate calculation of supplied materials in the supply chain, thus making a surplus in the inventory that corresponds to higher supply chain cost of the firm. Manufacturing companies that has a wide range of operation tend to conduct supplies in an informal method to reduce work load, but they do not anticipate the consequences of having excess supply. Furthermore, inventory system information in companies is studied as a sensitive part of the process operation of the company that leads to both inventory loss and excess inventory. Most inventory system does not measure accurately the inventories because of various and huge amount of supplied materials in a firm, and at the same time, theft factor are not included in detecting and analyzing inventories. There are small cases of disappearing inventories that leads to a higher inaccuracy of overall inventory analysis, thus concluding to more loss and irrelevant costs for the company.

Another factor that affects inventory is the logistics of the materials in supply chain management. Efficiency in logistics with proper information results to a better performance of overall stock turnovers and avoids excess inventory. A study modelled a system of First-Use-First-Serve (FUFS) to which they use inventory system information where they allocate inventories prioritizing time to a served location that requires the inventories immediately, and it improves the measures of the inventory system. This system makes use of excess inventory to transfer them to be used to another transaction and decrease the inventory at hand. In terms of material requirement planning, which is the inventory order of a firm from a supplier, it conducts analysis of information leading to excess inventories. This includes the frequency between orders, the location of error, and late units. These factors affect the overall inventory measures resulting to errors leading to a higher problem within the inventory system of a company. Moreover, the error in location increases the carrying cost, but the material requirement planning should be maximizing within its purpose of having a more precise ordering for a company. The lot size order of a specific material affects the company's measuring analysis to having excess components, thus giving the company the option to induce it to a final product inventory and again increasing the inventory at stock.

Other factors that contribute to excess inventory are low customer demand, forecast errors, inaccurate inventory records like not able to track double orders, insufficient planning and execution, long lead times in production, obsolescence, master schedule smoothing, distribution channel adjustments, changes in inventory holding costs, and firm's regular outlets or sales team have not done their parts well. Customer demand is the main factor that has to be taken into account regarding excess and obsolete inventory. The general manager judges whether an inventory is excess and obsolete, while the finance person analyzes the risks, makes follow up plans, and assures that policies are followed. Inventory allowance is recommended for excess and obsolete inventory. Moreover, not being able to track double orders greatly harm the company especially its operations. Retailers and customers tend to be impatient in waiting for products that require long lead times to produce which in effect led them to have multiple artificial orders from different suppliers or distributors. This then would cause difficulties in the manufacturing firms when the retailers and customers cancelled their other duplicate orders, leaving the firm with unnecessary stocks in production. The orders produced by the manufacturing firm then would be a waste as true orders are not able to focus on. Differentiating true demand from double orders would avoid overestimation of the demand rate, customers' sensitivity to delay, and excess inventory.

E. Solutions for Excess Inventories

In addressing the problem of excess inventory, alternative solutions have been presented and used in manufacturing firms. Marketing is an important aspect in every organization. It is where the whole organization's life is. Without sales, the firm would not be able to generate cash and survive. Having a good relationship with current customers is a good indicator of success in marketing the firm's product or services. However, having strong customers now does not limit one in finding and growing new customers. Marketing activities should be done regularly. Firm's should review and consider adding new product lines and reducing those unprofitable ones. Good marketing happens when people get to understand the company, its products or services, and having them realized that the products or services offered match their needs. Excess inventory can be sold to others internally or externally. Some ways are selling in sizes to a centralized liquidation auction that keep records and provides high returns, selling everything at an instant to a liquidator, selling in small volume to a surplus inventory liquidator where returns from customers can still be sold, creating an online account of selling excess products, and donating the products to the public as charity that earn tax deductions from the government. Obsolete inventory undergoes engineering review first to see if there would be other uses for it. Manufacturing companies can have different approach on this recycling process of materials to finished goods. They can directly collect used products and eventually disassemble them to make raw materials for the product itself, transact with retailers that they are distributing to, or to subcontract a third party to work for the collection of materials or used products. In this model of supply chain, they could decrease manufacturing cost because the used products are of without value to other retailers or consumers but only to the manufacturing firm. The management should conduct quarterly analysis of the possible or potential excess inventory to be able to reduce inventory disclosure when the 12months calculation of excess inventory is made.

Data gathering for forecasting had been an approach in determining future sales or customer demand. In the modern time, manufacturing environments require vast amounts of data in order to be as efficient as possible or whatever their goals maybe. Product and process design, assembly, materials planning, quality control, scheduling, maintenance, fault detection are just some of the data gathered for manufacturing firms. All of the data are stored in data warehouses. For some businesses, data collected previously may help determine forecast or future events. Furthermore, the creation of an independent group responsible for managing the consensus forecasting process would be advisable as it also manages the political conflict and informational and procedural shortcoming by the organizational differentiation more effectively. There are studies and research of how to precisely forecast the market supply of plastic demands like plastic bags. It contains business strategies along exportation and importation of these products. It concerns about prioritizing the global market, and it involves the dollar rates for those countries. Manufacturers could use this planning to further increase their market by applying the questions informed by the research. The study would summarized the approach on where should plastic be invested in terms of where the larger market are for them. It would show the consumption per year and be used as a forecasting tool for the succeeding years of manufacturing.

Although there are many good alternative solutions presented in dealing with excess inventories, many manufacturers are still tempted to go for the simpler yet more of an irrational way. Price cutting is not a wise and healthy strategy. It is simply letting the consumers feel that the only thing unique about the firm's products or services is the price. It would become the only consideration that they see in purchasing the goods and services offered by the company. Strategies that can be done are better or unique packaging, special offers for top customers, having the customers confused with brands through discounts and having them settle with the company's brand, and ensuring the customers of the purchase worth and good use of the product even if the price is a little high. Having a promotion through price cutting like heavy sale or discount would only lasts for a short period of time. Overall, it is still advisable that firms have to plan ahead to avoid excess production. Inventory management should be done wisely in every firm.

Theoretical Framework

Conceptual Framework

Delivery Centre and Goods Collection Centre

-Order processing (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Transportation (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Warehousing (Cooper, M., Lambert, D., & Pagh, J., 1998)


-Sourcing and procurement

(Cooper, M., Lambert, D., & Pagh, J., 1998)

-Inventory management (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Material requirement planning (Brown, K., 1994)


-Customer service (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Sales and information gathering (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Promotion (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Demand Forecast (Finreporting, 2011)

-Pricing (Yossi, A., 2001)


-Production scheduling

((Cooper, M., Lambert, D., & Pagh, J., 1998)

-Product design (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Process design (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Quality Control (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Maintenance (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Fault detection (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Research and development (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Product Remanufacturing (Canan, R., Shantanu B., & Luk N., 2004)







Figure 1: Self-management Delivery Logistics Mode (Liu, Y., Huang, J. & Zhang, Q., 2010)

Logistics Department

Here, the enterprise does logistics on its own. This mode practices self management and is prone to lesser risk. However, it increases the investment of the company as it places great importance through higher requirements for logistics management ability.

The Delivery Centre and Goods Collection Centre in the model represent a department or a person who manages the orders and the flow of products in the supply chain. The process starts with the enterprise ordering raw materials from the vendor, and it would supply the raw materials to the company to be placed in the Delivery Centre and Goods Collection Centre. The firm then would use these supplies in the production process, and finished products would be picked up at the Delivery Centre and Goods Collection Centre by the seller or marketer for sale. Customers then would order finished products from the seller, and the seller would deliver the goods to them.

In the model, the arrows pointed to the right indicate the flow of inventory from raw materials up to being served or delivered to the customer. On the other hand, the arrows pointing to the left represent the flow of information or order from the client or customers that is being sent to the supplier by the organization. The solid lines represent the flow of information as well as the information being shared by the department that is being gathered from all of the internal processes of the supply chain. Furthermore, the broken line represents the feedback given by the customers to the organization and passed to the suppliers.

The group chose this type of supply chain model because it is applicable and used by many of the Small and Medium Enterprises (SME) today in the Philippines. Also, the model is simple and easy to understand.

B. Operational Framework

Delivery Centre and Goods Collection Centre

-Order processing (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Transportation (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Warehousing (Cooper, M., Lambert, D., & Pagh, J., 1998)




-Reduced excess inventory

-Reduced wastage

Figure 2: Self-management Delivery Logistics Mode (Liu, Y., Huang, J. & Zhang, Q., 2010)

Logistics Department


-Production scheduling

((Cooper, M., Lambert, D., & Pagh, J., 1998)

-Product design (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Maintenance (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Fault detection (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

-Product Remanufacturing (Canan, R., Shantanu B., & Luk N., 2004)


-Sourcing and procurement

(Cooper, M., Lambert, D., & Pagh, J., 1998)

-Inventory management (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Material requirement planning (Brown, K., 1994)

Sale/ Marketing

-Customer service (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Sales and information gathering (Cooper, M., Lambert, D., & Pagh, J., 1998)

-Demand Forecast (Finreporting, 2011)







The independent variable or cause is supply chain management. Under supply chain management is a supply chain model with different activities under each division. They are interdependent with each other, and effective management of the whole supply chain would lead to a positive relationship of the dependent variable, profit margin. Effective supply chain management would result in reduced excess inventory and wastage which in turn would automatically lead to a higher profit margin.

The activities listed under each division of the supply chain model are believed by the group as essential due to its relation with the problem and objective of the paper; however, there are some activities that are excluded such as:

Table 1: Activities Excluded in Operational Framework and its Reasons



Process Design (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

It is not applicable because plastic manufacturing firms adopt one process only ever since.

Quality Control (Choudhary, A. K., Harding, J. A., & Tiwari, M. K., 2009)

It is difficult to measure.

Research and Development (Cooper, M., Lambert, D., & Pagh, J., 1998)

It is not applicable because research and development on plastics are not for business major rather they are for Chemical Engineers.

Promotion (Cooper, M., Lambert, D., & Pagh, J., 1998)

It is not applicable because the plastic bag industry does not use advertisement strategies.

Pricing (Yossi, A., 2001)

Internal prices are confidential and the company does not want to share any information about it.

C. Hypothesis

Effective supply chain management positively affect the increase in profit margin of Golden Dragon Plastic Manufacturing.

V. Methodology

A. Research Design (strategies on how to gather and analyze pertinent data to arrive at solution)

Initially, the group conducted a preliminary interview to find out the main problem of the company. After having told of the problem, the group found review of related literature through secondary sources of journal articles in the internet. Then, a conceptual framework was also found based on the review of related literature, and an operational framework was formed out of it. The group made interview questions on each variable of the operational framework. Eventually, we would visit the firm to have a better insight of the whole operations and would conduct the interview to our respondent. The group then would analyze the data gathered and make conclusions and recommendations.

We gathered data on secondary sources of journal articles in the internet for review of related literature and have found out some solutions for the problem of the company. Then, an interview would be conducted to the actual company, and information gathered would be compared to the ones on the review of related literature. The comparisons and analysis made after would lead us to conclusions and recommendations for the problem of this study.

B. Respondent

Our respondent will be Michael King, owner of Golden Dragon Plastic Manufacturing. He is familiar and deals with the overall operation and sales and marketing aspect of the firm.

C. Data Gathering Procedure

Step 1: The group conducted a preliminary interview to find out the main problem of the company.

Step 2: The group found review of related literature through secondary sources of journal articles in the internet.

Step 3: The group found a conceptual framework based on the review of related literature then formed an operational framework out of it.

Step 4: The group made interview questions on each variable of the operational framework.

Step 5: The group would eventually visit the firm to have a better insight of the whole operations and would conduct the interview to our respondent.

Step 6: The group would analyze the data gathered.

Step 7: The group would make conclusions and recommendations.

VI. References

Determination of Excess and Obsolete Manufacturing Inventory (2011). Retrieved February 15, 2011: http://finreporting.com/?page_id=187

Not Tracking Double Orders Can Hurt Manufacturing Firms (2002). Retrieved February 15, 2011: http://www.gsb.stanford.edu/news/research/mfg_orders.shtml

Is Your Business Engaging in Poor Marketing Strategies? (2009). Retrieved February 15, 2011: http://zeroone.ws/web/articles/568/1/Is-Your-Business-Engaging-in-Poor-Marketing-Strategies/Page1.html

Jack Trout: Why Price Cutting is a Poor Marketing Tool (2000). Retrieved February 15, 2011: http://www.businessweek.com/smallbiz/0006/bk000605.htm

Kehrer, D. (2010). How to Cash in on Your Excess Inventory. Retrieved February 15, 2011: http://blogs.business.com/whatworks/2009/cash-excess-inventory/

Toelle, R. & Tersine, R. (1989). Excess Inventory: Financial Asset Or Operational Liability? Production and Inventory Management Journal, 30(4), 32.  Retrieved February 13, 2011, from ABI/INFORM Global. (Document ID: 726335).

Choudhary, A. K., Harding, J. A., & Tiwari, M. K. (2009). Product and Process Design, Assembly, Materials Planning,. Journal of Intelligent Manufacturing , 501.

Ifandoudas, P., & Gurd, B. (2010). Costing for Decision-Making in a Theory of Constraints Environment. Journal of Applied Management Accouting Reserch , 43-59.

Lapide, L. (Spring 2010). Business Forecasting's Roles. The Journal of Business Forecasting , 14-16.

Lin, C.-P., & Lin, H.-M. (2010). Maker-buyer Strategic Alliances: an Integrated Framework. The Journal of Business & Industrial Marketing , 43.

O'Dwyer, M. (2009). Innovative Marketing in SMEs: a Theoretical Framework. European Business Review , 501.

Oliva, R., & Watson, N. (2009). Managing Functional Biases in Organizational Forecasts: A Case Study of Consensus Forecasting in Supply Chain Planning. Produciton and Operations Management , 14.

The influence of capability considerations on the outsourcing decision: the case of a manufacturing company. Retrieved February 16, 2011: http://0-search.ebscohost.com.lib1000.dlsu.edu.ph/login.aspx?direct=true&db=bth&AN=52038449&site=bsi-live

Product Innovation by Small and Medium-Sized Firms Through Outsourcing And Collaboration. International Journal of Management & Marketing Research (IJMMR); 2011, Vol. 4 Issue 1, p61-73, 13p, Retrieved February 16, 2011: http://0-search.ebscohost.com.lib1000.dlsu.edu.ph/login.aspx?direct=true&db=bth&AN=54846121&site=bsi-live

Philippines Manufacturing (1991). Retrieved February 16, 2011: http://www.photius.com/countries/philippines/geography/philippines_geography_manufacturing.html

Mendoza, A., & Ventura, J. A. (2010). Proceedings of the 2010 Industrial Engineering Research Conference. Industrial Engineering Research Conference , 1-6.

Cooper, M. & Lambert, D. (2000). Issues in Supply Chain Management. Retreived March 7, 2011: http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B6V69-3YDGKGP-8&_user=688293&_coverDate=01%2F31%2F2000&_rdoc=1&_fmt=high&_orig=gateway&_origin=gateway&_sort=d&_docanchor=&view=c&_searchStrId=1667487691&_rerunOrigin=scholar.google&_acct=C000038398&_version=1&_urlVersion=0&_userid=688293&md5=3f45bd10638d62e1c67c5f42bad0060d&searchtype=a

Cooper, M., Lambert, D., & Pagh, J. (1998) "Supply Chain Management: Implementation Issues and Research Opportunities", International Journal of Logistics Management, The, Vol. 9 Iss: 2, pp.1 - 20

Liu, Y., Huang, J., & Zhang, Q. (July 2010). Development Mode of Automotive Logistics and Optimizing Countermeasure of China's Automotive Enterprises. International Business Research , 194-200.

Gumrukcu, S. (2007). Inventory Accuracy Improvement Via Cycle Counting in a Two Echelon Supply Chain. Retrieved March 8, 2011: http://0-proquest.umi.com.lib1000.dlsu.edu.ph/pqdweb?did=1313914901&sid=1&Fmt=2&clientId=47883&RQT=309&VName=PQD

Kang, Y. (2004). Information Inaccuracy in Inventory Systems. Retrieved March 8, 2011: http://0-proquest.umi.com.lib1000.dlsu.edu.ph/pqdweb?did=1184153501&sid=1&Fmt=2&clientId=47883&RQT=309&VName=PQD

Wee, K. (2000). Inventory Coordination in Supply Chain Management. Retrieved March 8, 2011: http://0-proquest.umi.com.lib1000.dlsu.edu.ph/pqdweb?did=726064201&sid=1&Fmt=2&clientId=47883&RQT=309&VName=PQD

Brown, K. (1994). Inventory Inaccuracy in Material Requirements Planning Implementation. Retrieved March 8, 2011: http://0-proquest.umi.com.lib1000.dlsu.edu.ph/pqdweb?did=746834181&sid=1&Fmt=2&clientId=47883&RQT=309&VName=PQD

Canan R., Shantanu B., & Luk N. (2004). Closed-Loop Supply Chain Models with Product Remanufacturing. Retrieved March 8, 2011:http://0-www.jstor.org.lib1000.dlsu.edu.ph/stable/30046061

Yossi, A. (2001). The Effect of Collaborative Forecasting on Supply Chain Performance. Retrieved March 8, 2011: http://0-www.jstor.org.lib1000.dlsu.edu.ph/stable/822489

VII. Appendices

A. Sample Interview Guide