Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 1

Holy Angel University

Angeles City
S.Y. 2017-2018

Minimization of The Occurrence of Bad

Merchandise of 7-Eleven Telabastagan Branch,
City of San Fernando, Pampanga

Members:
Agustin, Chelsa Joi L.
Gomez, Michaella O.
Mallari, Danielle Janira F.
Manocay, Richelle R.
Santos, Krisiabel S.
Simbulan, Allison Joyce M.

Group 2

F-431
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 2

TABLE OF CONTENTS

Title Page 1

Table of Contents 2

List of Figures 3

Background of the study 4-5

Statement of the problem 5

Objectives 5-6

Significance of the study 6-7

Scope of limitations 7

Review of Related Literature 8-11

Theoretical Framework 12-13

Conceptual Framework 14-15

Methods:

Research Design 16

Research Instrument 16-17

Data collection procedure 17

Ethical considerations 17

Data analysis procedure 17-18

Appendix:

A-List of 7-Eleven’s rice meals 19

B-Questionnaire 20

C-Citations 21-22
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 3

LIST OF FIGURES

Theoretical Framework: Figure 1.1 12

Conceptual Framework: Figure 1.2 13

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 4

Minimization of the occurrence of bad merchandise of 7-Eleven Telabastagan, CSFP

Nowadays, less people are preparing and cooking their own meals for the day. They are

usually employees or workers who do not have enough time because they are always in a hurry,

or those who prefer buying meals in order to save money. Because of these reasons, they turn to

fast foods, canteens, and even convenience stores. According to Technomic's quarterly 2016

Convenience Store MarketBrief, consumers say they want retailers to offer more handheld foods

that are ready to eat and kept warm on display. Foods that are displayed are available for

immediate consumption. Since food can only last for a certain period of time, they have to

remove and replace those who have reached their expiration dates. These removed items will

now be considered bad merchandise.

7-Eleven is an American-Japanese international chain of convenience stores,

headquartered in Irving, Texas, that operates, franchises, and licenses in some 56,600 stores in

18 countries. It was known as Tote'm Stores until renamed in 1946. Its parent company, Seven-

Eleven Japan Co., Ltd., is located in Chiyoda, Tokyo. Seven-Eleven Japan is held by the Seven

& I Holdings Co. Like any other convenience stores, 7-Eleven cannot avoid having expired

goods, and this study is conducted to help 7-Eleven minimize the occurrence of having bad

merchandise. The branch of 7-Eleven to be researched on is located at Holy Angel Village,

Telabastagan, City of San Fernando, Pampanga. “Convenience occurs when the barriers to the

undertaking of an activity are reduced or eliminated (Bell et al. , 1998)”, convenience stores have

grown to be known by the consumers and as a result they often turn to convenience stores

whenever they need to buy food and other things.7-Eleven is known for providing different types

of consumable products and according to MacMillan, I. C., & Rita, G. M. (1997, Jul),

“Differentiation means offering customers something they value and those that the competitors
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 5

don’t have.” Promotions, Reorder Point, Economic Order Quantity, Inventory turnover and other

tools are thought and studied thoroughly by the researchers to provide helpful information to the

company.

This study will be conducted to know how to improve the ordering system of 7-Eleven

Branch which is located at Holy Angel Village, Telabastagan, City of San Fernando, Pampanga,

in order to lessen the occurrence of having bad merchandise.

Specifically, it will attempt to answer the following questions:

1. What is the current ordering system of the 7-Eleven branch?

2. What strategies will be undertaken to lessen soon-to-be expired merchandise?

3. What steps will be taken to increase the inventory turnover?

4. When will the branch know when to order the rice meals?

5. What level of inventory should 7-Eleven have to arrive at the lowest combination of ordering

cost and carrying cost?

The study was conducted to provide careful analysis of the current problem of 7-Eleven

convenience store regarding bad merchandise. The various factors that affect the company's

operation will be analyzed thoroughly using systematic processes. Proper approaches are

suggested to come up with effective and efficient systems of operation:

General Objective:

 To help 7-Eleven minimize the occurrence of bad merchandise.

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 6

Specific Objectives:

 To identify the Economic Order Quantity to know the optimum quantity with the lowest

carrying and ordering cost.

 To identify reorder point to ensure that the replenishment of inventory is without

shortages nor surplus.

 To identify the inventory turnover to know the number of times inventory is sold

 To develop promotion strategies that will be beneficial for the sale of the products.

The study on 7-Eleven Holy Angel Village, Telabastagan Branch is significant because it is

beneficial to them in finding a way to lessen the occurrence of bad merchandise. Through this

study they could find new techniques about the ordering system of their rice meals.

This study will be significant to the following:

OWNERS OF THE BUSINESS. This study will give them new ideas, techniques and strategies

like EOQ that they can use and utilize in order to minimize the occurrence of bad merchandise.

RESEARCHERS. This study will satisfy their curiosity about the ordering system and EOQ

that is currently being used to one of the favored convenience store. This study will let us see a

glimpse of what is really happening inside the world of business.

MANAGERS. Since the manager is the one who orders the stocks, this study would be a big

help to him in times of ordering. To help the managers know the close estimate of the future

demand to minimize the bad merchandise.

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 7

BUSINESS COMPETITORS OR THOSE IN THE SAME INDUSTRY. This study will help

them find a better solution of the problem in case they will encounter problems similar to our

chosen company. This will serve as their awareness and will help them avoid the occurrence of

bad merchandise.

The research study is limited to the unsold rice meals that are near-to-expire or have

reached their expiration dates. The data about cost will only include those involving carrying

cost, ordering cost and cost of goods sold. Other inventory items and other expenses will not be

discussed. The researchers will obtain their data from 7-Eleven Telabastagan branch, City of San

Fernando, Pampanga.
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 8

REVIEW OF RELATED LITERATURE

People seek for jobs for a number of reasons; one of these is to be able to buy their needs

like food. Some are able to prepare home-cooked meals, while some sort to buying ready-to-eat

meals. According to BBC News Magazine (2013), more women were working and everyone was

putting in longer hours in the office. Because of this, they do not have enough time to prepare

their meals. Home cooking has declined most among those whose food budgets are under the

most pressure (The Guardian, 2013). This is especially true for those who receive minimum

wage, and have to really budget out all their expenses. They prefer foods that have been prepared

so they can be consumed as is, without any additional cooking (Lana Billings-Smith). Ready-to-

eat meals are served in fast food chains, restaurants, canteens, and even convenience stores.

These are usually offered at affordable prices. The ones that are at convenience stores are

displayed in a refrigerated shelf, require minimal heating, and are served hot. Stores keep a low

volume of inventory of these meals because they can only last up to a certain date. Unsold goods

that are near their expiry are offered at discounted prices, promos, and even thrown out. Because

of this, the store will have to account for a loss for the unsold goods.

According to P.Miller, F.Vandome and McBrewster (2009), a convenience store is a

small store or shop that sells items such as candy, ice-cream, soft drinks, lottery tickets,

newspapers and magazines, along with a selection of processed food and perhaps some

groceries. Stores that are part of gas stations may also sell motor oil, windshield washer fluid,

radiator fluid, and maps. Often toiletries and other hygiene products are stocked, and some of

these stores also offer money orders and wire transfer services or liquor products. They are often

located alongside busy roads, in densely-populated urban neighbourhoods, at gas/petrol stations

or near railway stations or other transportation hubs. In some countries most convenience stores
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 9

have longer shopping hours, some being open 24 hours. Essays, UK. (November 2013). A Study

On The Blooming Of Convenience Store Marketing Essay.

In our modern world today, consumers are more concerned about saving time. They

focus their attention on having convenience in different things. According to Buckle et al.

(2005), “Convenience is also one of the factors that are increasingly important to consumers.”

The 7-Eleven convenience store is offering ready to heat meals and this is really helpful to those

customers who are working and doesn’t have the time to cook. According to Woodward

(2001). PR Newswire, "With limited time for lunch, people are extremely time- and price-

conscious. Meal deals are convenient. What's different at 7-Eleven is the customers know exactly

what they're getting because they pick everything themselves, before they pay. There are no

surprises when they open the bag." There are times when 7-Eleven experiences having expired

goods, goods that are not sold before the expiry date or which they call bad merchandise, and

thus to avoid this, the company offers promotions on their products. “In many industries,

promotions represent a significant percentage of the marketing mix budget. Nondurable goods

manufacturers now spend more money on promotions than advertising. Across industries, price

promotions are an important part of the marketing mix”, Blattberg, R. C., Briesch, R., & Fox, E.

J. (1995). How promotions work. Marketing Science, 14(3), 11. Expired goods are common to

stores, just like 7-Eleven, that sell goods with expiration dates. Since these are rice meals, their

expiration normally last up to three to four days only. These meals along with other drinks are

displayed on refrigerated shelves. When customers purchase a meal, it is heated in a microwave

before it is given to them. The unsold meals are disposed by 7-Eleven.

Managing the inventory is crucial especially in the part of 7eleven. Being a convenience

store, one must provide everything that the customer may need without even thinking if this
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 10

would be bought or not. The food or the product should be available whenever they need it

because the company is defined as a provider of convenience. According to Fisher (2009),

incorrect inventory management decisions in the department store sector have led to dramatic

markdowns. Food products in particular are affected by the problem of unsalabity by the reason

of varying taste and needs of the customer. Unsaleable products which turns into food waste or

bad merchandise represents, as what Mena et al. , 2014 food wastes states, an inefficient use of

resources, and from an ethical point of view it represents a lost opportunity to provide consumers

with nutrition. This only shows that in terms of managing the inventory, one must measure the

satisfaction and specific needs of the customer to determine what, when, and how to purchase

and how much to have in stock for a given period of time to be at optimal inventory level and to

reduce the occurrence of bad merchandise.

Customer satisfaction has been studied widely. According to Parasuraman et al. (1988),

who has studied the impact of service quality on customer satisfaction, believed service quality

has an important effect on customer satisfaction. And the relationship between customer

satisfaction and price sensitivity also has been studied. According to S.-M. Cheng et al. (2012),

satisfaction is divided into economic satisfaction derived from tangible products and social

satisfaction provided by service encounters. That economic satisfaction is negatively associated

with price sensitivity. However, social satisfaction is positively related to price sensitivity,

especially for female customers and customers with high patronage frequency. According to P.Z.

Vesna (2009), personal interaction quality has a stronger influence on customer satisfaction.

Customer satisfaction, in turn, contributes to customer loyalty; it means the satisfaction has a

very strong influence on loyalty. Besides, the study also involves the interests of the company,

laws and regulations and so on.

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 11

The forward side of retail logistics spends September through December moving high

volumes of goods into stores and e-commerce distribution centers. That's when the good, the

bad, and the ugly post-holiday returns hit: damaged, unwanted, outmoded, leaking, spoiled, or

counterfeit merchandise that pours back into retail stores and returns consolidation centers are

just some of the problems that customers face. Even when consumers return legitimately

purchased merchandise, retailers are faced with challenges such as product malfunction, missing

parts, damaged packaging, and expired perishable merchandise. It takes time, space, and training

to ensure a return is authentic, determine what to do with it, perform any required repairs or

repackaging, then send it on its way. Better use of data and prevention programs are helping to

reduce return rates for some operations, but there is still room for improvement.
 Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 12

THEORETICAL FRAMEWORK

Theoretical Framework
Causes: EOQ:
-Overestimation of consumer -Quantity Model
needs -Carrying Cost
-Manager’s failure on inventory -Ordering Cost
management -Annual Units
-Overstocking of goods
-Other reasons Reorder Point:
Minimization of the
occurrence of bad -Lead Time
merchandise -Daily units

Inventory Turnover:
-Cost of goods
-Sold
-Average Inventory
Figure 1.1

According to Bloom (2010 cited in Buzby & Hyman, 2012 p. 561), Food loss or food

waste occurs when an edible product goes unconsumed which is a result of human actions or

inactions, decisions made by the consumers. Food loss, defined as Bad Merchandise in 7-eleven

stores, are a result of many factors such as not preferred taste, overstocked goods, overestimation

of customer needs, failed inventory order system, manager’s failure on inventory management

and etc. According to VCMC, 2012; Priefer et al., 2013; Strid et al., 2013, One of the privileges

of a customer is that one can choose what he wants to buy especially if a store offers a full
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 13

stocked displays and wide variety of products. On the other hand, in the part of the store, even

though they don’t want to order more than what they can sell, losing customers due to half-

empty shelves is more terrifying especially there are a lot of competitors nearby where customer

can run into. In the long run, products that aren’t preferred are retained in the shelves leaving the

retailer a certain amount of outdated products that has to be disposed of. (Skye, nd.) Too little

stock leaves the customer with a little option on what to buy while keeping too much would be a

pro in the customers but a con on the part of the store.

Keeping an optimal inventory that matches the demand of the customer is what the store

needs and it will be achieved by using accounting tools like Economic Order Quantity, reorder

point and inventory turnover. According to Writuparna Kakati (2008), there are various ways to

approach stock control and number one is the EOQ model which helps to find out the optimum

level of stocks that should be kept to minimize a firm's costs; Fixed re-order stock level or the re-

order point, which the store identifies the minimum level of stocks it can tolerate before the

inventory run out of stock and re-orders when inventory stock reaches that level. According to

Daniel Fritsch (2015), Inventory turnover ratio can also be used for inventory optimization

because this measures the shelf life of the inventory and how fast it is to be sold in a given period

of time.
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 14

CONCEPTUAL FRAMEWORK

Conceptual Framework
-ORDERING -GATHER DATA -MINIMIZE THE
INPUT

OUTPUT
PROCESS
SYSTEM REGARDING THE OCURRENCE
PAST OF BAD
-CARRYING PROMOTIONS
COSTS MERCHANDISE
-GATHER DATA
-COST OF TO ANALYZE THE
GOODS SOLD EOQ, REORDER
POINT, AND
-RICE MEALS INVENTORY
TURNOVER
-PROMOTIONS

Figure 1.2

The conceptual framework will serve as a guide that will be used by the researchers in

conducting the research study. The researchers used the input-process-output diagram to be able

to know what inputs are needed to be processed to transform them into outputs.

Inputs are data or information that is provided by the external environment. In the

research study, 7-Eleven will be the external environment. The ordering system of the store will

be used in computing for the EOQ, reorder point, and the inventory turnover. The list of rice

meals will be used to know what variants the store offers. Promotions will be used to know if

they need to be changed or improved to be able to attract potential customers. The process

accepts the inputs and transforms them into outputs. The researchers will use the formulas for
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 15

EOQ, reorder point, and inventory turnover. They will also suggest effective promotional

strategies to attract customers. The researchers expect that the output of the research study is that

they will be able to minimize the occurrence of bad merchandise. With this, the researchers will

be able to help 7-Eleven reduce the number of bad merchandise in their store.
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 16

METHOD

Research Design

The researchers used a descriptive research design. This type of research is used to

describe a phenomenon being studied. In this research, the phenomenon being referred to is the

occurrence of bad merchandise in 7-Eleven. The researchers will be using the formulas for EOQ,

Reorder point, and Inventory turnover to help them in conducting the research study. The

research study will obtain its data from 7-Eleven Telabastagan branch, City of San Fernando,

Pampanga. It will include the list of inventory of the store about its rice meals, ordering system,

and the promotion for their goods. These will be used to analyze the inventory turnover, EOQ

and its reorder point. The researchers would like to know what kind of promotions the store

could come up with so that it will attract the customers. The researchers are hoping that the

results will lead to the minimization of the occurrence of bad merchandise.

Research Instrument

The researchers will use a questionnaire to gather information from the employees in the

specific 7/11 branch where the research will be conducted. The questionnaire is developed

through the information that the researchers need to attain for the study.

The open-ended questions to be answered by the manager and employees will be about

the EOQ, reorder point, inventory turnover, promotional strategies and their best-selling rice

meals. The information will eventually be used to minimize the occurrence of bad merchandise

of 7-Eleven, Telabastagan branch, City of San Fernando, Pampanga.

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 17

Data collection procedure

An interview with the Manager and employees of 7-Eleven Telabastagan branch who

have a direct access on the inventory and its ordering procedures and management. From the

information gathered in the interview, the researchers will analyze the inventory system and find

a way to minimize the occurrence of bad merchandise by the company. The researchers will also

consult and coordinate with the store personnel and manager about their current procedures of

accounting for bad merchandise and the solutions derived from the research. Also, the

researchers will seek the help of some instructors in the department who have expertise in the

area covered in the research e.g. inventory management, EOQ and etc.

Ethical Considerations

In conducting a study, it is ethical to ask for the permission or consent of the owner first

to do a research about their products. With regards to the primary resources, appropriate

permission will also be ensured for the usage of their data. Confidentiality of these data will be

maintained. In conducting the research, the researchers will not engage in actions that would

hinder the business’ operations. This research will be done thoroughly to ensure that the

company will be able to use it in their business. Secondary sources will also be acknowledged

and included in this paper thus citations of these sources will be included by the researchers.

These ethical considerations will be followed strictly by the researchers.

Data analysis procedures

The data gathered from the company will be used to analyze their ordering system

wherein computing the EOQ, reorder point and inventory turnover of their meals will be

determined. Likewise, data gathered from the company regarding past promotions and their best-
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 18

selling rice meals will be used to suggest an effective promotion strategy. The data from the

questionnaire made by the researchers will be used to help them know their best-selling rice

meals. It will also help them compute the company’s EOQ, reorder point and inventory turnover.

Formulas and solutions will also be shown on how the EOQ, reorder point and inventory

turnover were determined and computed.

Formulas:

EOQ = √2DO/C
D – annual demand

O – ordering cost

C – carrying cost

Reorder Point = Daily units x Lead time

Inventory Turnover = Cost of goods sold/Average Inventory

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 19

APPENDIX A

LIST OF RICE MEALS OF 7-ELEVEN

1. Sisig

2. Giniling

3. Tuna Omelette

4. Baked Chicken

5. Burger Steak

Best Selling Rice Meal: Sisig

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 20

APPENDIX B

QUESTIONNAIRE

Hello! We, researchers from Holy Angel University, would like to seek your cooperation for our

research work. Through this questionnaire, your answers will be helpful in our study. Your

response would only be used for research purposes and kept in strict confidence. Thank you very

much for your time.

Directions: Please write your answers in the space provided under each number.

1. How often are the rice meals ordered? (e.g. everyday)

___________________________________________________________________________
2. What is the quantity of rice meals per order? (e.g. 50 units per order)
___________________________________________________________________________
3. How much is the cost per unit?
___________________________________________________________________________
4. Are there any related cost per order? If yes, please specify the amount.
___________________________________________________________________________
5. When will the orders be dispatched and how long does it take to arrive?
___________________________________________________________________________
6. What is carrying rate of inventory of rice meals?
___________________________________________________________________________
7. Average quantity of rice meals being sold to customers every day?
___________________________________________________________________________
8. What are the promotional strategies being used to attract customers? (e.g. buy 1 take 1)
___________________________________________________________________________
9. What are the best-selling rice meals?
___________________________________________________________________________
10. What are the disposal methods of unsold or expired rice meals?
___________________________________________________________________________
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 21

APPENDIX C

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Food Losses and Food Waste.

Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 22

 MacMillan, I. C., & Rita, G. M. (1997, Jul). Discovering new points of differentiation.

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from http://www.inboundlogistics.com

 Winterman, D. (2013). The Rise of the Ready Meal. Retrieved from http://www.bbc.com

 Xu, Y., Ye, X., & Zhang, F. (2013). The Customer Satisfaction Research of 7-Eleven

Stores in Hong Kong. Journal of Service Science and Management, 6(1).

 Writuparna Kakati. (2008). Manage your inventory effectively: Avoid stock-outs and

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depth/2008/Oct/13/manage-your-inventory-effectively-avoid-stock-outs-and-

overstock.html.
Minimization of the Occurrence of Bad Merchandise of 7-Eleven Telabastagan Branch CSFP 23

 Daniel Fritsch. (2015). Inventory Control Techniques for Stock Optimization. Retrived

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stock-optimization/.