VARIETY BOOKS

MBA - SEC C GROUP MEMBERS OMAR AKHTAR MAIRA AROOBA SHEHLA MAJEED INTISAR HAIDER

WAC

Introduction and Problem Statement

Zahid Ali, an engineer at the government-owned telephone department started his first business as a general store called "Regency" in 1987 after selling and vacating one of his two plazas. Tariq Ali, the elder son of Zahid Ali was appointed as an operations Manager of the store in the same year. At that time all accounting was done manually, because of which the manager-cumowner had to sit in the shop the whole day to prevent "Pilferage", which was not acceptable by him as he wanted to keep a tab on the store without spending much time sitting there. So in June 1987 Usman, the younger son of Zahid brought IBM XT and Peachtree to control the inventory and took the in charge of operations and finances from his elder brother in June 1989 after his MBA from Lums. In 1990 Usman converted the Regency store to Variety Books store as he predicted good profits there. But now in 1993, when Variety book store had started making a good business and the sales had increased from R.s. 100,000 to R.s. 800,000, Pilferage" became the major problem of the store. He introduced and customized a new computerized inventory system but still the problem could not be solved, and not just the pilferage problem, after spending a lot on money and efforts to it, the computerized system could not even help reducing the working hours of the computer operator as he still had to spend seven hours a day updating inventory like before the system. He reduced the exits of the store to one door and also hired a guard, fired eight suspects but still the problem of pilferage couldn't be solved. Our goal in this case was to suggest a way to get shut of this major issue residing in the store, and also help Usman know how to manage the current computerized system the best way for the benefit of his business.

Qualitative Analysis:
1) Usman Ali was the Operations manager at Variety Books. 2) Zahid Ali started a private business in early sixties. 3) In 1968, he built two plazas at liberty Market and eased them both. 4) In the very same year of 1998 he started a general store called Regency. 5) Tariq Ali S/O Zahid Ali was appointed the Operations Manager at regency in 1987. 6) Tariq wanted to monitor the activities of the shop 7) A manual accounting system was used and all the things were noted in a register. 8) Zahid Ali considered the purchase of a computer and an inventory system to assist his son in managing the shop. 9) Usman Ali did his engineering from USA and was an MBA from LUMS in 1989. 10) In 1990, Usman converted Regency to Variety Books. 11) Sabir was responsible for accounts and coding of inventory. 12) Usman managed the entire process of purchasing items for his book shop. 13) Some of the suppliers offered extra discount on bulk volumes while some of the suppliers also provided terms as pay as you sell to Variety Books. 14) Each item was first coded with a unique number before being shelved. 15) A sticker and a code number and price were attached to the item.

Quantitative Analysis:
1) The percentage growth in sales from Nov 92 to July 93 was recorded to be 700%. Where [(800,000 100,000)/100,000] * 100

= 700% 2) Zahid Ali brought with him an IBM XT costing US $2,000 in 1987 and a Peach tree software. 3) The profit margin book sellers usually charged was about 30% on imported books while on local books it was generally from 10% to 50%. e.g. if an imported book original cost was Rs.100 the it could be sold for Rs.130 and similarly a local book could be sold for Rs. 110 to Rs.150 4) Only 10 % of the shop inventory was checked in a month, like if the book store had 10,000 books then only 1,000 books could be physically counted by Sabir and was a part of the problem because he as a single person counting so much of books was a hectic task for him. 5) To control the theft he increased the frequency of checking. 6) Secondly, he made changed in the organizational structure and planned to improve the computer system at Variety Books and Paradise. 7) By merging both the shops together, he would be able to reduce the staff and overheads and also minimize the exits of the shop to guard against pilferage.
8) Usman had 60 vendors to supply with all payments made on cash along with 70% items

on returnable basis. Means if some books are purchased from suppliers along with a given volume of say 10,000 per month then, 7,000 of the books would be returned if necessary while the rest 3000 books would be kept by the store for selling purposes. Moreover, each book could have same or different price depending upon the book type.

Some of the books were purchased on 100% returnable basis as well according to the purchase volume. In addition to this, it also depended upon the categories of what was actually purchased by Mr. Usman from his supplier and each of the product categories being cards, magazines, cassettes, etc. had different terms of payment varying from 100% returnable basis to 20% returnable basis. 9) 20% of the items were delivered on the shop along with invoices. If Mr. Usman had asked for 500 books the 100 books would reach to the book store directly, along with the invoice. 10) Usman spent 45 minutes daily at the shop and 3 hrs. at the office on 1st floor, which indicated that: Per month he used to sit at his shop 45 X 25 = 1125 min/month, and With 180 min daily in his office = 180 X 25 = 4500 min/per month, Moreover, he also used to go the market once a week to purchase books for the store and assuming he took 2.5 hrs. week every week in buying inventory for his books which means that: 4 weeks X 2.5hrs = 600 mins per month

At shop = 1125min At office = 4500 min At market = 600 min

So in a nutshell he used to be operational for his shop and office works per month for 6225 mins/ month or 103.75 hrs per month.
11) In July 1993, 10 purchase lists with 25 items were listed handled every day. So accordingly, 10 (purchase lists) * 25 (items on a list) * 25 (days a month) = 6250 items were handled every month. 12) Variety Store operated at 2 shifts with 5 salesmen working from: First shift: 9:00 AM 06:00 PM and Second shift: 5:00 PM to 01:00 AM Making a total of operational hours of the shop to be 16hrs. 13) 400 vouchers were given to computer operator Anwaar with each voucher listing 3 items on average, hence: 400 X 3 = 1200 items on avg daily Similarly, items processed on the computer in a month, 1200 X 25 = 30,000 items/month

14) Anwaar the computer operator who spent 7 hrs daily could be bifurcated as: 7 hrs X 25 = 175 hrs a month for updating inventory.

Now out of 7 hrs daily, 1 hr he used to verify the books against the correct codes Because sometimes a wrong code sticker used to be attached to the given book and he had to do a lot of fatigue with the messed up codes and books and finally had to make corrections to the books against the given codes.

15) Sabir who was actually responsible for physical count of inventory took more than 2 days to check out inventory of items (stationery only) and so he needed updated inventory lists for that so

that he could match all the items according to the list. There was another discrepancy; the suppliers had their own codes of stationery while at variety it was treated as one code for all stationery items. 16) Closing of the inventory files could take as much as 8-10 hrs. at the end of the month, which means that:

10hrs X 12months = 120 hrs/year in just closing of the inventory files, which is a huge wastage of time only and only because of slow computer. 17) A three phased payment method was used when Mr. Usman was dealing with Mr. Absaar of DCS computers, who could make the inventory software for Variety Store.

Rs. 10,000 at completion of development and installation Rs. 10,000 after 1 month trial period (testing) Rs. 5,000 after successful implementation of the software.

After successful implementation of the software the closing time of the inventory files which used to take 10hrs once at the end of the month was reduced to just 10min. So with the new closing time being just 10min and for the month it will be: 10min X 12 = 120 min/year Hence, the time saved from just overcoming the saving of the file was 118 hrs. every year!

Solutions and Recommendations

1) The cameras could have been deployed so that the theft could be avoided. The reason being we know that Rs. 82,935 was discovered that was creating a mismatch due to cross checking of sales VS inventory figures. Hence, if this loss continues to accumulate over the years and years then it would bring huge financial losses to the book store by, 82,935 X 5 months = Rs. 414,675 2) Electronic tags must be used which can track books using RFID technology; as soon as they move out of the sensor they get detected. 3) The software system for inventory must be outsourced i.e. be built from some software house which will cost around Rs. 60,000 but will be made according to the requirements of Mr. Usman. 4) Physical count was random and Mr. Sabir was the only person doing the physical count and was able to count only 10% of the total inventory, hence more people on physical count must be employed. Accordingly, it will cost Rs. 10,000 per month for an extra person to hire but will be able to keep track of inventory.

Mr. Usmans Timeline

1987 Engineering from USA

1989 MBA - LUMS

1989 Took over operations of Regency

1990 (after 6 months) Cross checking indicated more problems because of theft

1990 Converted regency to Variety Books

1989 MBA - LUMS

1992 Micro Inn for development of Inventory systems

1989 Error arose due to unidentified problem

1989 Rs.35,000 of IBM 386 SX from Micro Inn

Layout before

Watch store

Medical Store Book Store Juice Store Book Store Restaurant

Book Store

STAIRS

Layout after merger of 2 book stores (internal skeleton)

Watch store

Vacated in 1987
Paradise Book Center Merged in to Variety Book Store Restaurant

Joined with Variety Boom joining both the 2 book stores

STAIRS

Layout after merger of 2 book stores

Paradise Book Center

Book Store

Restaurant

STAIRS

Gross Margin Ratio

45 40 35 30 25 20 15 10 5 0 Feb 92 May93

Shortages
35,000.00 30,000.00 25,000.00 20,000.00 15,000.00 10,000.00 5,000.00 0.00 1-Feb-93 1-Mar-93 1-Apr-93 1-May-93 1-Jun-93 1-Jul-93

Purchase flow

Customer chooses book

Brings to

Voucher Cutter

Hands facsimile

Cashier

Voucher to

Customer

Matches voucher with facsimile

Facsimiles

Accountant (for verification)

Receives cash

Entry into system

Hands over to customer