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