Analysis Of Purchasing And Inventory Management Strategies To Improve Performance: A Case Study On Brisbane Outdoors Power Center

Purchasing and Inventory Issues in Brisbane Outdoors Enterprise

Discuss about the Analysis of the Purchasing and Inventory Management Strategies to Improve On Performance for a Case Study on Brisbane Outdoors Power Center.

For organizations to remain competitive and increase cost efficiency, it not only vital for the organizations meet customer needs and pay close attention to competitor activities, but also optimize internal operational and performance processes. Such processes include purchasing and inventory control among other processes that ensure the smooth running of an organization. In a retail business, a significant portion of the companies’ assets is appropriated to inventory. Therefore, inventory management is directly aligned to profit realization, and how well a company utilizes its capacity. Failure to implement an efficient inventory management strategy would result in unsustainable business operations that often affect customer satisfaction and business performance. Such is the case that affects Brisbane Outdoor power center, a company that deals with the retail of garden tools in Australia.

While Brisbane Outdoors Company constitutes three autonomously run stores, their consolidation of their inventory and purchasing operation need to be reviewed to develop a sustainable and cost effective process that promotes accountability and efficiency (Van Horenbeek et al, 2013). This case study report seeks to analyze the current purchasing and inventory performance of Brisbane outdoors Power Center. By evaluating the acceptable theories and concepts concerning purchasing and inventory management, in comparison to the current situation at Brisbane outdoors power center, we will attempt to provide corresponding solutions that can help tackle existing challenges affecting the Business. Additionally, implementing recommendation emanating from the inventory management concepts may help optimize and improve future performance in how Brisbane outdoors purchases and manages its inventory.

Brisbane outdoor power center stores are located in different areas within Australia namely, Mt Gravatt, Ipswich, and Strathpine. Each store operates autonomously with regard to purchasing and inventory management, a resulting factor owing to a laisse fair style of leadership practiced by previous management. As a result, there are notable challenges that emanate from the current operational processes. Firstly, the lack of centralized inventory system often causes instances of high carrying costs. As respective stores place orders, for items, they may not put into consideration that another store may have a surplus supply of a particular product (Zhang, et al., 2010). In such a situation, the business foregoes the profits that would have been gained from the sale of already stocked products, all the while incurring the higher carrying cost as well as a higher working capital dedicated to inventory costs at a different store. In the event a product does not carry high demand within a particular region, a unified inventory management system can identify a viable location that can sell the product. This would increase the overall stock turnover, as well as sales in all the stores.

Operational Management Concept and Strategies That Can Improve the Purchasing And Inventory Processes At Brisbane Outdoor Power Center.

 Notably, individual stores purchase from multiple suppliers, which is not effective, since, the business incurs higher ordering cost in addition to foregoing the bargaining opportunities that arise from buying in bulk. This may include discounts on merchandise, reduced logistical cost, as well as improved relations with reputable suppliers. For instance, an order of a particular product made by one of the stores may not qualify for the discount opportunities provided by supplies. However, if all the stores were to consolidate their orders into one, the combined size of the order would enable all the stores to incur a discounted cost of the stock. Therefore, Brisbane is forced to pay more for the cost of inventory and logistics, which affects negatively on the organization’s bottom-line (Ross, 2013; Drake, Myung Lee & Hussain, 2013). A duplication of some operations also leads to extra expenses resulting from hiring extra personnel to liaise with suppliers and offload the ordered stock.

Since Brisbane Outdoors Company invests heavily on inventory, it is important to keep track of the correct stock number. Having three different inventory systems will present difficulties in the creation of accurate reports on stock levels. This leaves room for stock unaccountability and possibly stock theft. The head office needs to be aware of how much it invests in particular stock including the stock turnover, to inform their budgeting decision. Moreover, some inventories carrying high purchasing can become obsolete consequently costing the company due to the lack of accurate information sharing (Heizer, Render & Munson, 2016). While there have been no major problematic incidences, a company needs to be prepared for any eventuality that could greatly damage the reputation of their business. For instance, suppliers may incur a shortage of a particular product arising from high demand. In such a case, accurate stock reporting is needed to ensure that Brisbane Outdoors Company orders enough stock to cater for the discrepancy between supply and demand in a particular period. In the end, strategic planning of purchasing and inventory process plays a major role in determining how much product to store and the appropriate re-order level for each product line. It also minimizes the risk of overstocking and under-stocking products in a dynamic business environment where products life cycle is unpredictable while customer satisfaction is key to maintaining a competitive edge.

Several operational management strategies can help improve the current challenges affecting Brisbane Outdoors Company. With regard to inventory management, the key target areas that should be considered in terms of improving the operations should aim to minimize holding costs and maximize customer satisfaction through ready availability of products, as well as company bottom-line. There should be efficient cooperation between levels of management. The main objective of the inventory management can be classified in three distinct features, which include strategic decisions, tactical decisions, and operational decisions (Fu, 2015; Qrunfleh & Tarafdar, 2014).

Techniques that Should be Considered in Inventory Management at Brisbane Outdoor Center.

Strategic decisions set the overall goals that should be achieved by an inventory management process. This may include policy formulation that may present a high risk or require heavy investment. Tactical decisions are a decision that helps implement medium-term strategies. Such decisions focus on activities that require fewer resources and a considerable amount of risk. Such decisions may include setting the recommended safety stock and re-order level that present some amount of risk to a company’s bottom-line (Fu, 2015).. Finally, the operational decisions are concerned with the implementation that will ensure the tactical decisions are adequately met. For Brisbane outdoors power center, tactical decisions are made by store managers while the overall direction of the purchasing departments is made by the top-level management, which in this case refers to the C.E.O of the Brisbane outdoors enterprise. 

Management should come up with comprehensive minimum and maximum stock levels that should be retained in all the branches. Additionally, optimized re-order and safety levels should be established to minimize on carrying cost and ensure that consumers have readily available products. This can be done through developing forecasting mechanisms that track the demand of the variety of product that a business provides. This may include time series methods that analyze the historical purchases patterns of particular products and using them to predict the expected future sales.

Recommendations. In the case of Brisbane outdoors business, classification of product using the ABC classification model could enable each store to identify the fast moving stock as well as the slow moving stock in a bid to develop safety levels and re-order levels for their products. ABC classification mainly categorizes the entire product that a business stocks to identify a cost-effective system of inventory investment (Awudu and Zhang, 2012; Qrunfleh & Tarafdar, 2013). The ABC classification method applies Pareto’s 80-20 rule, which in inventory terms indicates that approximately 20 percent of the products account for almost 80 percent of the inventory value of the total. Such products are classified as A-products using the ABC classification tool. B-product constitutes 30 percent of the items that account for about 15 percent of the inventory value while  C-products is represented by 50 percent of the items stocked, which carry a value of 5 percent of the entire inventory value. Although the percentage value is not absolute, managers can develop a suitable product classification list that will ensure an appropriate distribution of resources within Brisbane outdoor business enterprise. For each product category, different stock policies should be implemented. For instance, A-products class, which represents the fast moving goods, should have higher safety level as well as periodic stock reorder in comparison to C-products class, which consist of goods that are not consumed at a fast rate. The main advantage of employing the ABC classification system is management’s ability to control high priority inventory, efficient turnover count of particular products as well as mitigate the risk attributed to overstocking and under-stocking. Although the ABC classification requires substantial resource investment, its subsequent overall benefits exceed the cost that would otherwise be incurred in the absence of such a system.

A continuous management system primarily refers to a management system that can consistently track of that quantity level as well as the value of the all the products a company has stocked. Systems may include a point of sale software or an enterprise resources planning system. Such application software alerts managers on the status of the stock safety of each of the products while also providing demand analysis by evaluating historical data of previous customer purchases (Christopher, 2016). 

Recommendation. Brisbane outdoors enterprise would benefit greatly from such a system by ensuring that there is real-time information regarding the status of the stock in each of the three stores. This would mean that all the stores have to subscribe to the same inventory system to eliminate any discrepancy in inventory control and reporting.

The procurement function of an enterprise is directly associated to inventory control and cost management. Procurement’s role in the supply chain cannot be emphasized enough as it ultimately affect many aspects of the company including overall efficiency performance of the company. With the growing competitive business environment, organizations are seeking to improve performance standards of an organization including, maintaining an efficient supply chain process (Fu, 2015; Angeles & Nath, 2015; Chicksand et al., 2012).

An efficient purchasing strategy involves focuses on the entire process of that purchase starting from ordering process to identifying the appropriate supplier and the delivery of the stock to respective stores. Therefore, the initial step in a purchasing process would be to identify what inventories need to be replenished. Secondly, the identifying appropriate supplier for each item is equally important. The process can be based on cost benefits analysis that each supplier provides to the business and establishing which suppliers will satisfy the organization procurement needs (Kiilu, 2016; Li, Granados & Netessine, 2014; Roberta, Christopher & Lago 2014). Fostering strong and reliable relationship with suppliers is essential for businesses to enhance stability and customer satisfaction.

Recommendations. Brisbane Outdoors Company needs to evaluate its purchasing procedures to ensure that they are efficient. Integration of purchase processes will allow the enterprise to keep a centralized data on the inflow and out flow of all their products (Zhang, et al., 2010; Li, Granados & Netessine, 2014). Additionally, a centralized order system could allow the business to take advantage of bulk purchases, which could significantly reduce the cost of stock purchases as well as other after sales services such as free logistical support. However, the supply chain needs to be periodically monitored to ensure that they are operating at optimum efficiency.

Conclusion

While product availability for customer purchase is important in any retail business, we learn that several other factor play a vital role in ensuring that business runs efficiently and maximizes on profit. Reduction of costs associated with having surplus stock or a deficit in stock often can improve on the overall performance of the business and also increase customer satisfaction by reliably meet their demand. The ABC analysis system has the capability to develop cost effective inventory resources allocation. The benefits presented by employing a product classification system outweigh the cost of maintaining such a process.

For Brisbane outdoors Power center, the need to develop a synchronized purchasing and inventory processes that can provide an accurate report on the precise amount of stock in each store. Additionally implementation of unified purchasing processes can drastically improve the efficiency of procurement providing opportunities brought about by bulk orders. A homogenous inventory and purchase system that can allow accurate sharing of information at the required time will enhance the preparedness of Brisbane outdoors Power Center enterprise to meet future customer demands as well as other expected changes within the industry.

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