Operations Management For Logistic Systems: Inventory And Purchase Management

Current Purchasing and Inventory Management Process

Discuss about the Operations Management for Logistic Systems.

The inventory and purchase management is one of the most important job functions in an organization (Monczka et al., 2015). It is a powerful tool in the management of the organizational workflow. The organization needs to purchase new materials from time to time or replace the old materials in the organization. There are a variety of tasks in this Purchases Department such as purchase requisition, receiving of the goods, management of inventory workflow and the configuration of the warehouse. This report is supposed to be prepared by the Inventory and Purchase Manager and intended to be submitted to the CEO of Brisbane Outdoor.

The current inventory processes at the Brisbane Outdoor was decentralized with minimal policies and regulations. The decentralized inventory tends to respond in a better manner in the event of emergency situations (Van Le et al., 2013). This is because if there is any natural disaster in one inventory location, then the other warehouse would not be affected. The current purchasing processes were based on mutual cooperation, goodwill and common-sense. There were no strict defined procedures and policies that were implemented for the inventory and purchase management (Van Le et al., 2013).

The management of Brisbane Outdoor adopted some bad management practices in the inventory and purchase domains (Van Le et al., 2013). The decentralized approach made the stores to operate autonomously and independently. There was minimal cooperation between the stores as they were functioning independently (Salcedo et al., 2013). The branch managers had little interactions with them and they were unaware of the other store’s operational processes. There was no uniformity in the availability of the product brands (Salcedo et al., 2013). The different stores demonstrated different range of products, which created confusion among the internal as well as external stakeholders of the company (Salcedo et al., 2013).

The individual inventory stores had different management style. The stores had different SKU (Stock Keeping Unit), Stock Out and New Old Stock, which they maintained separately (Sharma & Malhotra, 2015). The primary functions of the individual stores include the identification of the stored materials, receipt of all incoming materials, inspection of the products and material handling (Sharma & Malhotra, 2015). The branch manager is also responsible for proper storage as well as preservation of the materials. He is also responsible for stores accounting, inventory control and stock taking of the particular store (Sharma & Malhotra, 2015). There are two types of stores such as physical and functional. The company engages in segregating its operations based on these two categories. The functional store involves the segregation of the materials as per the purpose of its use (Sharma & Malhotra, 2015). The physical store is meant for materials as per their structure, size, weight or location.

Advantages of decentralized inventory management

The company believed that the decentralized inventory management has certain advantages. They can perform the “storing” function as well as the “controlling” function easily. There will not be a delay in the material handling job function. There is less chances of inventory loss by the incident of fire as the geographical locations of the warehouse are different (Stadtler, 2015). There is no need of internal transportation costs that requires the finished products to be shifted from one location to the other (Stadtler, 2015). It is possible for the organizations to fulfill the needs of the individual departments easily (Stadtler, 2015). This is because the individual inventories were managed by individual branch managers (Stadtler, 2015). The organization also believes that they can reduce the costs associated with the handling of the materials (Stadtler, 2015).

The decentralized inventory management has several advantages such as the personnel are aware of the local factors in the particular market. They are also aware of the upcoming events in the local area. This enables them to launch special promotional activities which would be best effective if done in a local area (Schmitt et al., 2015). They may also be aware of the requirements of the local customers. It is also easier for the senior management of the organization to delegate responsibility to the store personnel (Schmitt et al., 2015). The effective delegation of the responsibility would make the managers work harder and satisfy the organizational goals (Schmitt et al., 2015). There is quick decision making process as the divisional managers do not waste time in sending information to the top management (Schmitt et al., 2015). The divisional managers are closer to the regular operation of the business operations hence they can make better decisions (Kotler et al., 2015). It is easier for the top management to concentrate on the strategic business issues (Schmitt et al., 2015). It becomes easy for the business to evaluate the performance of the products. The managers can allocate the resources to a particular division in a convenient manner (Schmitt et al., 2015).

The decentralized store options are able to meet specific events as well as needs of the organization. The local forecasting is usually more accurate (Bowersox, 2013). There is less number of issues which are caused by the communication networks (Bowersox, 2013). There is more input and subsequently better output. The branch manager is open for decision making activities and can devise innovative solutions for the organizational issues (Bowersox, 2013). There is accelerated decision making and there is quick implementation of the decisions as it takes place in the primary areas for business (Bowersox, 2013). It becomes convenient for the organization to spot the actual problems in the store. This makes the businesses to identify the weak links in the organization and take corrective actions accordingly. This increases the overall efficiency of the organization.

Disadvantages of decentralized inventory management

There are several disadvantages of the decentralized inventory process. The lack of expertise of the managers is a serious issue in a decentralized inventory process. The branch manager may not have sufficient years of experience in managing the store. He may fail to understand the big picture of the organization (Beliën & Forcé, 2012). He may continue to focus on his store only and ignore the overall organizational goals. This inventory process promotes an unhealthy competition in the organization. The branch manager of one store may compete with his counterparts in other branches in an irrational manner (Beliën & Forcé, 2012). It may foster an environment of negative competition in the same organization, which becomes a concerning issue for the top management. There are instances when these managers engage in unethical activities in order to be ahead of the competition, which causes bad reputation for the organization (Chopra & Sodhi, 2014). In this form of inventory management, the local control can pose serious problem for the organization. They operate on a subjective basis using the traditional methods. They often refuse to adopt the sophisticated tools (Beliën & Forcé, 2012). There are also chances that they over react to the certain situations where there is a strong bias for local inventories (Beliën & Forcé, 2012). There can also be higher costs involved in the purpose of supervision. There is involvement of more space required for setting up the individual office stores.

The decentralized inventory management has some pitfalls for which they are not always accepted by the organizations. There may involve high amount of investment, especially during the initial years (Chopra & Sodhi, 2014). There can also be higher cost involved in the maintenance of stationary as well as employees. There are times when a lot of time is taken for the purpose of stock taking and maintaining of the purchasing inventory. The decision making of the local manager will be influenced by the local view of the organizational operations (Chopra & Sodhi, 2014). There may also be some procedural differences in between the areas of authority as the local branch manager would customize the business decisions as per the local needs (Ward & Peppard, 2016). There may be increased influence of the local cultures on the overall functioning of the organization (Chopra & Sodhi, 2014). There may be issues in the recruitment activities at the local level. The organization may not find suitable manpower that can perform the specific tasks of the organization.

Implementation of Inventory Management concepts

The effective management of the inventory remains at the core of the excellence of supply chain management (Christopher, 2016). The organization usually has to manage a wide number of inventories which ranges from the raw materials to the finished goods. There are other work related process, partner inventories and others. They have to be aware of the market forces of demand and supply (Christopher, 2016). The company must strive to keep adequate levels of stocks while reducing the investments of the company (Wisner, Tan & Leong, 2014). It should also aim for increasing the efficiency of the supply chain processes. This can be done by the implementation of the following concepts-

• Effective stock management should be done by keeping in mind the stock reviews, fixed time, economic order quantity, Just in Time and other standard formulas (Methot & Wetzel, 2013).
• It is important to define the type of stocks as well as define the supply chain processes. There are usually four types of stocks involved such as raw materials, finished goods, unfinished products and consumables (Christopher, 2016).
• There must be implementation of stock security measures that would protect the stocks from theft and damage (Christopher, 2016). There can be damage due to several reasons of damage such as burglaries, fire, pests or insects.
• There should be stock replenishment which is important considerations for the company if they wish to maintain adequate stock levels (Wisner, Tan & Leong, 2014). The maximum as well as minimum levels for the items needs to be determined along with the stock rotation practices (Wisner, Tan & Leong, 2014).
• There must be adequate handling as well as packaging of the stocks such as correct packaging materials, careful handling, complete seals, use of proper bands and others (Korponai, Bányai & Illés, 2014).
• There should be optimum storage conditions for the inventory of the company. There should be adequate humidity control, temperature control, protection from pests and protection from sunlight (Wisner, Tan & Leong, 2014).

The application of the above concepts would help the company to increase organizational efficiency with reasonable investment.

Ms. Green should concentrate on restructuring of the inventory structure of the company. It is essential to create strict inventory policies that would be beneficial for the organization. The organization should adopt a centralized operation of the inventory so that it becomes convenient for the company to manage the purchasing function. There should be adequate cooperation as well as communication in between the business processes. The senior management should allow proper communication channels between the branch managers. The organization should manage the investment sources of the company. There should be integrated operational approach for the inventory management function. There should be interconnection between the purchasing functions of the company and there should be rationalization of the inventory process. The linkages should be established in a logical manner so that the organization can gain from it.

What	How	Who	When
Centralized approach	One source of operation	Purchase Manager	6  month
Cooperation	Meetings	Operation Manager	1  month
Communication	Online Seminars	Senior management	1  month
Investment source	Networking	Accounts Department	2  month
Integrated operational approach	Support from managers	Operational Head	2  month

Fig: Action Plan

Source: Created by author

Conclusion

The operation management is one of the most important functions of the management. This report showcased some of the core concepts of the inventory management as well as purchase management. The current situation of the case study is reviewed along with the identification of operational issues. The advantages as well as disadvantages of the decentralized inventory management are discussed. The processes that can be followed for improving the efficiency of the inventory management are discussed. The concluding part of the report discusses about the recommendations for Ms. Green as well as action plan for implementing the suggestions.

References

Beliën, J., & Forcé, H. (2012). Supply chain management of blood products: A literature review. European Journal of Operational Research, 217(1), 1-16.

Bowersox, D. J. (2013). Logistical excellence: it’s not business as usual. Elsevier.

Chopra, S., & Sodhi, M. S. (2014). Reducing the risk of supply chain disruptions. MIT Sloan Management Review, 55(3), 73.

Christopher, M. (2016). Logistics & supply chain management. Pearson Higher Ed.

Korponai, J., Bányai, Á., & Illés, B. (2014). The Effect Of Different Packaging Concepts On Logistical Costs And Stocks. Advanced Logistic systems, 8(2), 35-50.

Kotler, P., Keller, K. L., Manceau, D., & Hémonnet-Goujot, A. (2015).Marketing management (Vol. 14). Englewood Cliffs, NJ: Prentice Hall.

Methot, R. D., & Wetzel, C. R. (2013). Stock synthesis: a biological and statistical framework for fish stock assessment and fishery management.Fisheries Research, 142, 86-99.

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and supply chain management. Cengage Learning.

Salcedo, C. A. G., Hernandez, A. I., Vilanova, R., & Cuartas, J. H. (2013). Inventory control of supply chains: Mitigating the bullwhip effect by centralized and decentralized Internal Model Control approaches. European Journal of Operational Research, 224(2), 261-272.

Schmitt, A. J., Sun, S. A., Snyder, L. V., & Shen, Z. J. M. (2015). Centralization versus decentralization: Risk pooling, risk diversification, and supply chain disruptions. Omega, 52, 201-212.

Sharma, S., & Malhotra, A. (2015). Safety stock calculations and inventory analysis: a practical approach for the FMCG case in a South-East Asian country. International Journal of Advanced Logistics, 4(3), 131-144.

Stadtler, H. (2015). Supply chain management: An overview. In Supply chain management and advanced planning (pp. 3-28). Springer Berlin Heidelberg.

Van Le, D., Huynh, L. T., Claudiu, K. V., & Achim, M. (2013). The impact of inventory sharing on the bullwhip effect in decentralized inventory systems.Logistics Research, 6(2-3), 89-98.

Ward, J., & Peppard, J. (2016). The Strategic Management of Information Systems: Building a Digital Strategy. John Wiley & Sons.

Wisner, J. D., Tan, K. C., & Leong, G. K. (2014). Principles of supply chain management: a balanced approach. Cengage Learning.

Zhao, Y., & Zhao, X. (2015). On human decision behavior in multi-echelon inventory management. International Journal of Production Economics, 161, 116-128.