Discuss about the Inventory Management in Brisbane Outdoor Power Centre.
Inventory management, supply chain methods and purchasing patterns of a firm are important increasing efficiency and profitability of a firm. An analysis of Brisbane Outdoor Power Centre established the need to change inventory management process to reduce financial losses (Chen & Paulraj 2004). This report analyses the purchasing patterns of Brisbane Outdoor Power Centre by looking at the benefits and shortcomings of the inventory and purchasing methods being used by the firm. The report further suggests Just in Time inventory management method as the best replaced for the current inventory management through suggesting how the method can be rolled out.
Brisbane Outdoor Power Centre is run at three levels where each outlet has a manager. The person in charge of each outlet makes independent decisions on the way to manage purchases and inventory within the outlet. The outlets are run based on decentralized purchasing where each manager makes purchases as per the requirements. Each of the stores has different requirements that are purchased according to the market needs. They are based on market purchasing method which is based on the needs within the market. According to Carlyle, Montgomery & Runger (2000), decentralized purchasing allows the department managers to establish the demands by the customers and make purchases based on the requirements. This enables the satisfaction of clients through just in time purchase. Managers make an inventory of the most selling products within the locality and stock them. Each of the three outlets is located in a different area that is defines by market needs of the customer. The outlets can easily adjust the purchase requirements based on the needs they have and the purchasing resources that they have. Through this method the manager pays attention on the inventory requirements and develops a purchasing pattern that is based on the trends in sales.
Due to laissez fire management approach within the outlets, inventory management based on fixed order quantity. Under this inventory management process, ordering mistakes are avoided through ensuring that only replenished stocks are replaced for the particular item. In this inventory management method stocks that have reached a minimum level are replaced to the maximum until they have reduced to the minimum stock level (Wild, 2002). The inventory management method is based on product code, minimum stock, maximum stock, stock in hand and recommended order quantity. The idea behind this method is to maintain stock of every item using any structure of keeping and monitoring stocks. Since the outlets are run and managed separately, there is no common stock recording format that is used across all the outlets.
Each outlet establishes its maximum and minimum stock of every item that is stocked by the outlets. Since the outlets have different preferred stocks, they developed lists of different products that are in stock and how they are being utilized in the market. Therefore the outlets determined the stocking levels within each specific outlet. This continuous inventory method ensures that there is adequate stock within each outlet to meet the customer needs. If one outlet delays in making orders the inventory can be supplemented through stock from another outlet to ensure continuous supply (Wickramatillake et al 2006).
Decentralized purchasing offers a flexible environment for each outlet to carry out purchasing of the required stocks. Since the stock levels and buying patterns vary from each outlet. Having a decentralized purchase system allows each outlet to make purchase adjustments. This allows attention to be paid on critical stocks that are required by each outlet. Managers are also ,are responsible of the purchases that they make and thus losses as a result of poor purchasing only affect the concerned outlet (Mentzer 2004)..
Mageto, Chirchir & Ombati (2012), argue that decentralized purchasing allows purchasing the right quantities of the required stock by each outlet. These purchases are in smaller quantities which do not require heavy amounts of money. This means that the stocks are purchased on a rolling basis thus saving time for purchase of the new stock. Further it is easier to make purchases quickly since approval of purchases does not require bureaucracy before approval.
Decentralisation of purchasing process, allows the outlets to determine trends in the market that fit the location of the outlet. For example, Brisbane was common with commercial operators who bought items from the outlet and relied on it for spare parts and after sales service. This, therefore, meant that outlets made their purchasing decisions based on the market demands and trends. This difference in purchasing patterns ensured that each outlet is able to satisfy market needs that arise and keep changing (Cousins 2008; Vagstad 2000).Better control and supervision is achieved through decentralized systems. Materials are managed easily through coordination and quick decision making within each outlet. The burden on the CEO is reduced since most of the functions are carried out by the respective manager of the outlet.
Fixed quantity inventory method allows outlets o determine the stock levels and make new orders immediately. This inventory method allows for proper and just in time requisition of new stocks. This, therefore, allows for satisfaction of customer needs through maintaining stocks at the minimum required levels (Johnson, 1998)
Fixed quantity inventory also allows the organization to determine the required quantities and the market trends that exist. This, therefore, enables the organization to have different purchase patterns that are determined by peak and low seasons within the locality. This is achieved through continuous monitoring of inventory to determine status at every level.
However, decentralized purchase system offer little coordination of outlets since each outlet is run on its own. This minimal coordination may lead to unplanned buying of stocks or compromise on quality. This is clearly notice by the fact that different products brands exist in the three stores. There are no specific brands that are uniformly stocked by the three outlets making it difficult to use brands from one outlet by another (Mehra and Inman 2004).
Benefits that relate to bulk purchases are lost in decentralized purchasing. Bulk purchases carry heavy discount and many benefits that are given by the supplier. This is because the stocks are purchased from a central point making it easier to enjoy these benefits on a large scale. Reduced prices lead to heavier prices by the firm (Weele & van. 2005).
Further risks like lack of adequate purchasing skills are avoided since the firm depends on an expert that is in charge of procurement. This, therefore, allows for effective controls of materials where departments are coordinated by a larger unit that ensures materials are utilized well.
Aigbedo (2004) argues that effective management of inventory is an integral element of supply chain management in any organization. Firms that generate more cash flows use sustainable techniques that are economic friendly to a firm which allows firms to survive in deep economic times. Modern scholars have developed different supply chain and inventory management methods that help businesses to reduce costs and maximise efficiency. Today many firms have adopted Just In Time inventory management technique that enables ordering of only required items. Through just in time method, inventory track and recording enables the firm to determine the exact time that the items are needed. Therefore orders are made just in time to replace the replenished stock before the customer needs it. This order is based on the time delivery of the supplier to ensure that inventory is maintained at the required level. This method is based on the idea of reducing inventory size from bulk purchasing and thus reducing storage costs.
Just in Time delivery method is based on several components of production in small lots, short business set up time, high quality delivery and a commitment delivery by the supplier. This method is thus dependent on the efficiency of the whole supply chain system and the inventory management in the firm. Lau (2000), further suggests that, the need for accurate response by the management and the supplier enables the firm to manage their inventory based on future demand predictions. Development of sophisticated inventory management methods will help the management to make accurate inventory forecast based on product demands to five accurate responses by the firm. Bad forecasts will translate to storing costs by the firm which may interfere with the inventory. Therefore the accurate response method will help the firm to easily manage and predict the inventory.
To improve inventory management, information technology can be a key component that the firm can take advantage. Many businesses are doing well by adopting information technology in the business processes. Businesses are able to use different tools to monitor and keep track of their inventory. These tools make it easy to update the inventory and share the information between different departments in the organization. Further, the tools are designed to carry out analysis that helps in predicting the future trends that may guide inventory controls within the firm (Cheng and Podolsky 1993).).
Canel et al. (2000) argues that, the strategy behind Just in Time inventory management is that excess inventory is expensive to a firm and should thus be minimized as much as possible. This reduced costs increase profitability of the firm through return on investment from ordering and storing costs. To improve this inventory method in a firm, the business needs to improve relationships between the suppliers to ensure that they are able to supply all the items in time. To implement Just in Time within the firm, the following steps need to be followed to change the business
Step one: restructuring the inventory to adopt Just in Time system, the need to change the inventory management system to Just in Time may take some time within the firm. This will entail developing new inventory systems that may translate to costs in the firm. They may include developing new structures like buying new computer tools that will be used to run the new inventory system. It will further include orientation of employees to the new system before it is adopted. However, there may be need to roll out both the new and the old inventory systems for sometime before doing away with the old system.
Step two: keep track of all the stocks and customer purchases to determine how materials move within the company. This will determine the stock levels that will enable timing of the inventory levels within the firm. Determining the inventory levels will help in establishing order levels and periods that inventories need to be reordered. This will take a whole financial year to determine the trends in the inventory.
Step three: determining the stock reorder levels, these levels are determined by an analysis of how the stocks have been moving in the inventory. An analysis of stocks will determine the interval and purchase levels that need to be adopted by the firm. As a manager, the need to control inventory through keeping stocks at the minimum levels helps to reduce storage costs. This will happen immediately after the end of the financial year. The manager should be able to determine peak and low seasons and thus establish reorder levels in peak and low seasons.
Step four: keep on improving the inventory management system, implementing an inventory management system based on Just in Time management is not the end of the process,. However, the need to keep improving the process will increase efficiency within the organization. This will be a continuous process, of determining gaps within the system and ways of improving.
Conclusion
Inventory management systems lead to storage costs that are experienced by many firms. The need to reduce costs has led many firms to adopt Just in Time inventory management systems. This allows firms to keep minimum stock levels and sometimes deliver stocks directly to customers from the supplier without passing through the store. This method helps to minimize storage costs and increase efficiency which adds up to increased profits by the firm. Therefore MS Green needs to change the inventory method in Brisbane Outdoor power and outlets will improve the whole business. Further the need to change the business operations and have a centralized way of purchasing and operations will help in meeting quality standards that will satisfy the clients more and ensure the business gains a competitive advantage (Stevenson, 2001).
References
Aigbedo H. (2004), Analysis of Parts Requirements Variance For a JIT Supply Chain. International Journal Of Production & Research , Vol. 42, pp. 417-430. 3.
Canel, C., et al. (2000). Just-in-time Is Not Just for Manufacturing: A Service Perspective .Industrial Management and Data System. 100(2). 51-60.
Caryle W.M., Montgomery D.C. 8s Runger G.C. (2000), Optimization Problems and Methods in Quality Control and Improvement. Journal of Quality Technology, Vol. 32, pp. 1-17. 9.
Chen I.J. & Paulraj A. (2004), Understanding Supply Chain Management: Critical Research and a Theoretical Framework, International Journal Of production & Research, Vol. 42, pp. 131-164. 7.
Cheng T.C.E and Podolsky S, (1993).Just-in-Time Manufacturing –an Introduction, Chapman and Hall, London.
Cousins, P., Lamming, R., Lawson, B. & Squire, B. (2008). Strategic supply management, Principles, theories and practice, Financial Times Prentice Hall, Harlow.
Dubois, Anna, and Luis Araujo. (2007). Case research in purchasing and supply management: Opportunities and challenges. Journal of Purchasing and Supply Management 13 (3):170-181.
Johnson, P.F., Leenders, M.R. & Fearon, H.E. (1998)The influence of organizational factors on purchasing activities, Journal of Supply Chain Management, vol. 34, no. 3, pp. 10-19.
Lau R.M.S.(2000). A Synergistic Analysis of Joint JIT-TQM Implementation. International Journal of Production Research. Vo1.38, pp. 2037-2049. 18.
Mageto, J. Chirchir, M., Ombati, T. (2012).Fundamentals of Inventory Management: An introduction to inventory control models.
Mehra, Satish, and R. Anthony Inman. (2004).Purchasing Management and Business Competitiveness in the Coming Decade. Production Planning and Control 15, no. 7: 710–718.
Mentzer, J.T. (2004). Fundamental of Supply Chain Management, Thousand Oaks, California: SAGE Publications.
Stevenson, G. (2001). Just-in-time: The Reincarnation of Past Theory and Practice. Management decision. 39(10). 866-879.
Vagstad, Steinar. (2000). Centralized vs. decentralized procurement: Does dispersed information call for decentralized decision-making? International Journal of Industrial Organization18 (6):949-963.
Weele, Arjan J. van. (2005). Purchasing & supply chain management : analysis, strategy, planning and practice. 4th ed. London: Thomson.
Wild, T. (2002). Best Practice in Inventory Management (2nd Ed.).Oxford, Great Britain: Published by Elsevier Science Limited.
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