Executive Summary. 3
Executive Summary. 3
Problem Statement 3
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
Economies of Scale.. 4
Specialized Knowledge.. 5
(c) Lack of
(d) Lack of
Strategic Control 5
Procurement and Inventory Management Concepts. 5
(i) Economic Order
Quantity (EOQ). 5
(ii) ABC Analysis. 5
Turnover Ratio.. 6
(iv) Just in Time
Steps in Implementation on Integrated Procurement Process. 7
(i) Identify the
store’s need.. 7
(ii) Identify the
with suppliers. 7
(iv) Negotiation.. 8
(v) Liaison with
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.
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.
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.
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.
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.
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.
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).
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).
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.
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)
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)
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.
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.
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.
are the inventory management concepts that can be used by company to increase
efficiency and reduce its investments by making adequate stocks
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,
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.
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)
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).
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