Inventory management is one of the most important operations management activities at Manor

Bakeries, Europe’s largest manufacturer of ‘ambient’ packaged cakes and pies. (Ambient means

that they can be stored at room temperature). Its brands include Lyons and Mr. Kipling. Its fleet

of vans routinely restocks the shelves of thousands of small retailers, and also distributes to

major supermarkets, but here the re-ordering process is usually managed by the supermarket’s

own inventory management systems. Cakes are produced at four factories, on production lines,

some of which are operated continuously. Although considerable effort is made to forecast sales

accurately, there is always uncertainty. Yet there are limits to how much inventory can be used

to compensate for demand fluctuations because supermarkets require products to be on their

shelves for most of their shelf-life, allowing only a few days for Manor to transport, store and

deliver the products.

Input stocks of raw materials must also be carefully managed at each factory. Bulk ingredients

such as flour and sugar are delivered to giant storage silos, but managing the hundreds of other

ingredients (butter, nuts, dried fruits, pasteurized egg, etc.) is more complex. Some of these are

not expensive, but are used in huge volumes, while others are very expensive, but usage is small.

Some ingredients have a short shelf-life and have to be stored in special conditions. Some are

easily available, others are specially imported and are on long lead-times and fresh annual crops

such as fruit can vary in quality and availability. Packaging is frequently changed to reflect new

promotions and price changes. Yet running out of stock is serious. It can disrupt production

schedules and lead to stock-outs of finished products, affecting both sales and customer

relations. Inventory also occurs because of the way products are produced on the production

lines. Although some products sell enough to warrant their own production lines, most lines

have been designed to make a range of similar products. So, products are made in batches,

sufficient to last until the next production run.

Suggested questions

1. What are the factors which constitute inventory holding costs, order costs, and stock-out

costs at Manor Bakeries?

2. What makes its inventory planning and control so complex?