Purchasing And Inventory Management Processes For Brisbane Outdoor Power Centre

Questions:

1. What are the current purchasing and inventory management processes being used by the company?

2. What are the comparative advantages and disadvantages of the currently used processes?

3. What supply-chain and inventory management concepts would help the company increase efficiency and reduce investment whilst maintaining adequate stock levels?

4. What recommendations would you make to Ms Green with respect to restructuring the purchasing and inventory functions of the company?

Brisbane outdoor Power Centre is started with 1 store now has 3 retail stores. All the stores are profitable and operate quite independently in managing their inventory and purchasing systems. As all the stores are in profits, Management did not care about the details of the operations of each store and how they are handling various operations and all the stores are operated in fairy loose and decentralized fashion with no common policies or rules. As the founding member decided to retire, branch manager of one of the store, Ms Green, overtook this business. She was not convinced with the existing way of things and wanted to make some improvements. The objective of this report is analyze the current system and sport the inefficiencies and thereby suggest or recommends approaches to improve the current system and rationalize the procurement and inventory processes of all the 3 stores. 

1. Brisbane Outdoor Power Centre as evolved from a single retail lawnmower business to a full-fledged thriving group of 3 retail outlets that supplies possibly all the equipment used in gardening. Donald who is the founder of this business manages 1 store initially and then acquired the other 2 stores which are both running in profits. As the other groups are running in profits, Donald didn’t interfere much in the operations of the other 2 stores and manages his own store at Mt. Gravatt.

Present state is that all the 3 stores are operated independently manages their own sourcing and inventory. Each retail stores are having their own set of suppliers from which they generally purchases. As a result, it may be the case in case of the same suppliers it is approached by the 3 different purchasing departments of each of the retail store for different requirements and orders. This also means that Brisbane outdoor is making much more additional efforts in negotiation with suppliers than what is required if they could have negotiate with the suppliers collectively (Leuschner, 2013).  Not only this, it may be possible that same supplier is supplying same materiel at different prices to different retail stores of Brisbane Outdoor power Centre. Thus, there could be more potential of saving the cost, which is not actually been realized.

Answers:

Also, Donald’s style of non-interference as long as the stores are making profits have given rises to some odd sourcing and inventory management practices. Currently, different retail stores stocked products of different brands at different retail stores. This will lead to different experience for customer when they visit different stores.

In case of shortages of any particular item, they will be transported from different retail stores but there was no integrated approach. The company operated in a complete decentralized fashion with each retail store stocking products of its preferable brand, buys from supplier of its own choice and kept inventory and safety stock based on its own decision and having goals and values of its own. Though this approach worked very fine earlier but as the Brisbane outdoor power is growing at a rapid rate, it becomes important for the organization to make appropriate changes in its production and inventory management system to explore further potential of cost savings and provide customers uniform experience across all of its retail stores.

The inventory management system at the company was not good. The company was using the old and traditional methods of inventory management. There was not any integration between the inventory management of the three stores and each store used to have its own stocks and inventory. The three inventory managers used to have their own calculations about the stock in hand and the order to be placed. This was not a good inventory management practiced as it lead to completely different, independent and exclusive inventory management systems of three stores. 

Each retail store has full independent to manage its operation and hence are very agile in response as there are no approvals required for its decision making (Knoppen, & Saenz, 2015).

Another advantage of having decentralized purchasing and inventory management is that each store is having information about the upcoming events in their area and aware of the local factors and thus are stocking more products based on their own requirements (Chung, Talluri, & Narasimhan, 2015). For instance, Ipswich store is having more range of ride-on mowers and other gardening equipment that are required for maintaining large properties and hobby farms.

As each retail store is stocking products of its own chosen brands, it will help the store to customers in an effective way. Each store can independently decide which brands are selling more and liked more by its consumers and can stock the same leading to higher customer satisfaction.

Advantages of Current Process

More control with the local management lead to more sense of ownership, which is very much required to run the retail store effectively. Also, local management is much more sensitive to the demands of its local customers and hence can be able to connect with the customer in a better way (Stadtler, 2015). Customers will feel more connected with the store.

There are many disadvantages of the current purchasing and inventory management systems. Few of them are as follows:

One of the downside of the existing system is that each retail store is dealing with the same suppliers individually which means that it is possible that different stores have negotiated different rates with same suppliers (Rushton, Croucher, & Baker, 2014). All this leads to 2 things, first there is additional effort organization is spending on buying. Second, there is potential of saving that is lost because each store is buying at different rates

Each retail store is creating separate purchase order a supplier and thus unable to take the benefits of bulk discounts if all the requirements of different stores can be combines (Chopra, & Sodhi, 2004).

Another scenario here is that it is possible that one retail store is getting products at a very cheap price from the supplier based on his relationship while another retail is getting same materiel from different suppliers (Konur, & Geunes, 2016).Different stores are having same products of different brands. This will lead to different customer experience in different stores (Jorgensen, & Kort, 2002).

There are incidents of over and under purchasing of materials. Also, each store is maintaining its own safety stock which lead to the higher inventory levels for the while organization. Same capital can be divested from inventory and can be invested to reap better returns (Yano, & Gilbert, 2005).

There will no opportunity of discounts on bulk purchases. 

Currently, all the retails stores are maintaining their own inventory and safety stock. Thus, there is high level of inventory it is maintaining and there is huge scope of reduction. Brisbane Outdoor Power should maintain all the safety stock at only one of its retail stores whichever is having large area and enough space (Wisner, 2015). All the stores should be replenished from the safety stock whenever required. This will help in reducing the capital tied up in the inventory, which can be invested or used at some other place to earn greater returns.

Disadvantages of Current Process

Brisbane outdoor power should exploit economies of scale. Management should collect the data from the different retail stores and analyze it and identifies the different scenarios like below and the action plan for each of the scenario:

Scenario 1: Different retail stores are buying from same supplier. In such cases, lowest prices paid by the store should be noted and further negotiated for bulk discounts while ordering the material for all the 3 stores.

Scenario 2: Different retail stores are buying same material from different suppliers. In such cases, it should be analyzed which store is paying the least amount to the supplier, the quality of the items supplied by different suppliers, their lead time and appropriate supplier should be selected after prioritizing the needs between price, quality and delivery. In this case, also discounts can be availed on ordering bulk quantity for all the stores (Fearne, & Hughes, 2013).

Scenario 3: Different retail stores are buying different materials from different suppliers. In all such cases, best supplier should be identified for all the products considering various options.

It can be defined the economic order quantity so as to minimize the ordering and holding costs of the inventory. If the organization orders fewer inventories, less holding costs will be incurred however it has to order quite frequently and every time incurred a ordering costs. At the same time, if it will order too much quantity, it needed space and other associated inventory holding costs. Thus, EOQ is a quantity, which is defined by minimizing the holding and ordering costs (LEv, 2013).

In this strategy, automatic order is places when the quantity reaches the certain level. That certain level is defined by the safety stock and lead-time. An order will be placed when the quantity is left enough to be consumed during the lead-time and reaches threshold safety stock. According to this strategy, inventory will be replenished as soon as the level just reaches the safety stock level (Rossin, 2012). Therefore, this approach will allow storing the safety inventory but not allowing the accumulation of excess inventory in the system.

4. There are many things that can be done by Ms Green to restructure the purchasing inventory functions of the company. The company should centralize this function. It can purchase the software that can be installed in all the 3 factories and maintains the inventory levels of each of the store. The same software can be used to purchase the material from the same set of suppliers but with different ship to and bill to locations. Therefore, the purchase order will be one for all the material and but material will be delivered at different stores. This helps the organization to take advantage of discounts using bulk quantity (Sridharan, 2013). If some items are in demand in particular store, then it can be delivered at same store. The best approach here is to keep the safety stock inventory at 1 store only and not at all the stores. And regular supplies should me order by common Purchase order at all stores.

Safety Stock Reduction

There are much Software like Xero, QuickBooks online and MYOB that offers software services on the cloud and charges based on the usage basis (Ma, 2015). At this time, there is definitely requirement of software to manage the operations effectively and this software provides value of money. Brisbane power does not have to invest in infrastructure and consulting fees to use this software on cloud. Once it grows and expands, it considers to use the full fledge ERP systems like Microsoft dynamics.

Conclusion

To conclude, Brisbane outdoor power centre new management has spotted very valid observations in the current system that all the stores are having very unconnected purchasing and inventory systems and operates quite independently. It could be possible that all the 3 stores are negotiating separately with same suppliers and paying different rates. This report suggested several measures to improve the system like centralizing the purchasing function using software. This will increase the visibility of the material at all the stores as well as help organization to save money on bulk orders.

References

Chopra, S., & Sodhi, M. S. (2004). Managing risk to avoid supply-chain breakdown. MIT Sloan management review, 46(1), 53.

Chung, W., Talluri, S., & Narasimhan, R. (2015). Optimal pricing and inventory strategies with multiple price markdowns over time. European Journal of Operational Research, 243(1), 130-141.

Fearne, A., & Hughes, D. (2013). Success factors in the fresh produce supply chain. British food journal.

Jørgensen, S., & Kort, P. M. (2002). Optimal pricing and inventory policies: Centralized and decentralized decision making. European Journal of Operational Research, 138(3), 578-600.

Knoppen, D., & Sáenz, M. J. (2015). Purchasing: Can we bridge the gap between strategy and daily reality?. Business Horizons, 58(1), 123-133.

Konur, D., & Geunes, J. (2016). Supplier wholesale pricing for a retail chain: Implications of centralized vs. decentralized retailing and procurement under quantity competition. Omega.

Leuschner, R., Rogers, D. S., & Charvet, F. F. (2013). A Metaâ€ÂAnalysis of Supply Chain Integration and Firm Performance. Journal of Supply Chain Management, 49(2), 34-57.

Lev, B. (2013). Economic Order Quantity Model Extensions. Encyclopedia of Operations Research and Management Science, 464-466.

Ma, X. (2015). The adoption of cloud computing for small and medium accounting firms.

Rossin, D. (2012). Push-Pull Boundary Location, Information Quality, and Supply Chain Performance: An Exploratory Analysis. Journal of Global Business Issues, 6(1), 7.

Rushton, A., Croucher, P., & Baker, P. (2014). The handbook of logistics and distribution management: Understanding the supply chain. Kogan Page Publishers.

Sridharan, R., & Simatupang, T. M. (2013). Power and trust in supply chain collaboration. International Journal of Value Chain Management, 7(1), 76-96.

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

Wisner, J., Tan, K. C., & Leong, G. (2015). Principles of supply chain management: a balanced approach. Cengage Learning.

Yano, C. A., & Gilbert, S. M. (2005). Coordinated pricing and production/procurement decisions: A review. In Managing Business Interfaces (pp. 65-103). Springer US.