Current Purchasing and Inventory Management Process. 4
Advantages of Decentralized Purchasing and Inventory Management Process. 4
(b) Right Quantity and Quality. 4
(c) No Heavy Investment Required.. 4
Disadvantages of Decentralized Purchasing and Inventory Management Process. 4
(a) Lacks Economies of Scale.. 4
(b) Lacks Specialized Knowledge.. 5
(d) Lack of Strategic Control 5
Procurement and Inventory Management Concepts. 5
(i) Economic Order Quantity (EOQ). 5
(iii) Inventory Turnover Ratio.. 6
(v) Centralized Purchasing.. 6
Steps in Implementation on Integrated Procurement Process. 7
(i) Identify the store’s need.. 7
(iii) Communicate with suppliers. 7
The report presents a case about Brisbane Outdoor Centre, which offers wide range of ride-on mowers and other garden equipments. The initial part of the report presents a brief introduction of the company followed by problems faced by the company in managing its operations. The second part of the report discusses about the current purchasing and inventory management process along with the advantages and disadvantages of current process.
The third part of the report focuses on various inventory management concepts that can help the company in effectively managing its inventory and tends the company to inject reduced investment whilst maintaining the adequate sock. The last part of the report provides a recommendation to restructure the whole purchasing and inventory function. Further, this part of the report also describes a brief action plan which could be adopted by the company in restricting its purchasing and inventory management system.
The report presents a case about Brisbane Outdoor Power Centre that provides wide range of ride-on mowers and other garden equipments through its three retail stores. Donald Saxon, owner of Brisbane Outdoor, had initially opened its first outlet in Mt Gravatt in 1985 followed by two successful purchases in Strathpine centre and Ipswich in 2001 and 2004 respectively. The company had achieved tremendous success and had achieved loyal customers because of the performance, reliability and after sales service.
Donald and Saxon are considering retiring, so Belinda Green, the manager at Strathpine shows her interest to purchase the whole operation because she strongly believes that the company can achieve tremendous success in future endeavoring. All the three stores at Brisbane Outdoor operate independently and do not have such tight policies and procedures so she was concerned about the effective execution of operations. In order to avoid this, she requested to analyze the problems in current management system and any possible recommendations which could smooth the overall operations.
Brisbane Outdoor operates an odd purchasing and inventory management practice where each store operates autonomously. The procurement and inventory management system of the three stores are not integrated which raises difficulty in analyzing the appropriate stock. This led the company to inject substantial funds in stock and fails company from gaining operational and financial efficiencies.
Current Purchasing and Inventory Management Process
Brisbane Outdoor operates retail business which requires substantial investment in stock and an effective means of managing such investment. All the three stores run an autonomous purchasing and inventory management process where manager of three stores did their own purchasing and run a separate inventory management process. The inventory systems of the three stores are totally different and are unconnected with each other which restrict managers to determine the stock at other outlets. Though all the three stores operate autonomously but various stocks were transported between stores when required.
Advantages of Decentralized Purchasing and Inventory Management Process
(a) Instant Purchasing
The managers of the individual stores can easily purchase the inventory when required. Operational managers are directly involved in analyzing the inventory level at outlets so they can easily place an order when the stock touches breakeven point (Zipkin, 2000).
(b) Right Quantity and Quality
The managers have enough idea about the buying pattern of their customers, i.e.; customers at one outlet may require quality but may be more concerned about cost on other outlet. The managers are directly involved in analyzing the buying pattern, so they can better purchase right quantity and quality for their stores (Bozarth and Handfield, 2006).
(c) No Heavy Investment Required
Managers of different outlet can place orders in small quantity which will reduce the investment required in inventory management and improves the working capital of the company. Further, small orders can be delivered quickly and replacement of defective material took less time.
(d) Less Bureaucracy
There is less bureaucracy in decentralized purchasing due to less administrative work. The operational manager will not be required to wait for approval from higher management and can easily place an order when the inventory reaches breakeven point (Bowersox, Donald, 2007)
Disadvantages of Decentralized Purchasing and Inventory Management Process
(a) Lacks Economies of Scale
When each outlet places individual orders then the organization would lose the discount from bulk purchases. The retail business requires substantial investment in stock and inability to get such discounts will threatens the profit of the company (Bowersox, Donald, 2007)
(b) Lacks Specialized Knowledge
The responsibilities of the managers are to effectively operate the outlet so they may lack the knowledge of procurement whereas on the other hand, centralized procurement managers are competent in achieving competitive pricing and delivery terms.
(c) Lack of Efficiency
Outlet managers may lack efficiency because they are not specialized in bargaining competitive rates and agreeing delivery terms. Inability to achieve competitive rates would increase the cost of sale and lacks company to achieve substantial profits.
(d) Lack of Strategic Control
In decentralized purchase and inventory management system, store managers took their own decision to purchase the inventory and lack any approval or authorization from strategic management which may result the wastage of resources in unnecessary purchases.
Procurement and Inventory Management Concepts
Following are the inventory management concepts that can be used by company to increase efficiency and reduce its investments by making adequate stocks
(i) Economic Order Quantity (EOQ)
Economic order quantity is an inventory management system that determines an ideal order quantity to a company. The basic motive of EOQ is to reduce the inventory ordering and storage cost. It basically determines a breakeven point where both the ordering and storage costs are low and tends the company to determine a cost effective reorder level of inventory (Storey, Emberson, Godsell and Harrison, 2006)
Further, it can also improve the working capital of company by not investing huge capital in piling up the inventory. It will save the company’s resources and increase chances for company to invest in new worthwhile opportunities.
(ii) ABC Analysis
In supply chain management, ABC Analysis is a method that categorizes the inventory into three categories, where A is considered as most valuable item and C as least one. The basic aim of this analysis is to draw the attention of managers into hot spot items which generates larger profits or represents a substantial portion of the company’s sale (Bowersox, Donald, 2007)
This analysis would help the managers to exert tight inventory control of items that fall in “A Category” and strictly avoids any stock out because it could substantially harm the company in the long run. Items that fall in “B category” are continuously monitored and took reasonable actions to avoid any stock out. Further, items in “C Category” are less frequently reviewed because of the low demand or low margin on its sale. Usually, the order for C Category items were placed when there is 1 unit in the stock (Bowersox, Donald, 2007).
(iii) Inventory Turnover Ratio
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