Sample Business Paper on Purchasing and Inventory at Brisbane Outdoor Power Centre

Summary

Outdoor Power Center is a growing business in Brisbane with three major stores. It enjoys the competitive advantage in the market on the basis of its brand loyalty, potential customers, quality and other effective marketing mix. But there are some internal problems in its operations that shows low productivity and performance, mainly due to inefficient inventory management system.

In this report, the problems of poor inventory system are described along with their effects on overall performance of Outdoor Power Center and on brand uniqueness. There are some inventory management policies and procedures, which reduce the cost and error of inventory control systems. The solutions of these problems along with some recommendations is also given in this report.

Introduction

Outdoor Power Center, a well-established and growing business, works in Brisbane with network of three stores (Mt Gravatt center, Strathpine center & Ipswich center) at different locations. All centers are same but there is difference in products according to the local customers such as the Ipswich’s center in residential area offers the variety of ride-on mowers, garden tools, domestic acreages and small farmhouses which is most demanded by customers of larger properties.

All of these centers works as an independent business. Outdoor Power Center enjoys a good reputation and competitive advantage in the market with diversified products of best quality, educated & trained staff and most important, satisfied customers. But there are some issues and problems in its Operating activities, that are described in below paragraphs:

Problem

The Outdoor Power Center is known for its skilled employees, best quality products and excellent services i.e. delivery and other after sales services but Outdoor Center should work on following issues to work effectively and efficiently. That are:

  1. Decentralized system based on utmost good faith and mutual cooperation.
  2. Fairly loose Approache. lack of defined or standardize rules, policies and procedures
  3. The process of managing and controlling the purchase and inventory is not effective. As odd practices relating to inventory management system is still followed in Outdoor Power Center.
  4. There is lack of Optimum Utilization of sources as Brisbane Outdoor do a large amount of investment in stock arrangement and management.
  5. Each store of outdoor Power Center works autonomously in purchasing and controlling the inventory, sale and distribution of products. There is no as such integrated approach as the operations or activities of each store are unconnected and different with each other. Moreover, the inventory managers of each store use their own handling and maintenance method of inventory. Moreover, they arrange their requirement of inventory from their own sources
  6. Product brand differs from store to store, this thing can attack the brand loyalty and reputation of Outdoor Power center. As there is a fixed standard of brand products, that should be followed by every store to win the confidence and trust of customers.

Discussion

The details of above mentioned problems and issues faced in Outdoor Power Centers is as follows:

Current purchasing and inventory management processes

 

The Outdoor Power Center works on the decentralized approach means every store holds and control its operations by itself. There is no centralized office or management that plan, design, control, schedule and implement the overall operations of all stores. Every store arranges the material by its own sourcing. Moreover, the transfer and movement of material within the stores doesn’t require particular prerequisites or accountability means there is an integrated approach. There is no as such rules or polices and standards set to control the overall operations of stores as it is based on confidence, utmost good faith and mutual cooperation. Every store manufacture and sale the product according to customer’s trend in that specific market i.e. no scheduling related to distribution of products. This inventory management system has following pros and cons:

 

Advantages of Current Inventory management system:

  • Stock Rotation
  • Specific needs of potential customers can be fulfilled
  • Immediate availability of inventory in emergencies
  • Low internal transport costs
  • Material handling cost saving
  • Minimize the chance of risk and incremental cost
  • Controlling and accomplishing in each store can be done easily
  • Improve diversity in products and services

Disadvantages of inventory Management system:

The disadvantages of this inventory method can be described in following points:

·       Loss of Cost Effectiveness

·       Poor Customer Service

·       Poor Planning

·       Complicated infrastructure

·       Duplications of inventory/equipment

·       More investments

·       Extra or Spare space is required for each store and department

·       Promote healthy competition among stores

·       Attack the brand loyalty and uniqueness

·       Diseconomies of scale

Solution & Action Plan

In Outdoor Power Center, there are following types of inventory used:

  1. Raw Material
  2. BOP i.e. Bought-out-parts
  3. WIP i.e. Work in process
  4. Finished goods
  5. MRO supplies

There are some problems in controlling and managing these inventory which affects the efficient operations (as discussed above), which could be solved by efficient and effective inventory management, the below figure is an illustration of whole inventory management system:

 

Inventory management circle begins and finish with supply chain management as most of the opportunities to perform the operating activities effectively begins with limiting the order to receipt time without employing more investment in arranging or managing the inventory. The other stages of inventory management circle are based on some inventory policies and inventory management concepts, which are also important in overall effective inventory management system.

Supply-chain Management

 

The term “Supply chain” refers to the sequence of activities and facilities of a company which involved in manufacturing and distributing the products/ service to its end users. The sequence starts from the first supplier of raw materials to its final destination (Customer) i.e. commercial and retail consumers of Brisbane Outdoor Power center. Facilities of Outdoor Power Center comprises offices, factories, processing centers, warehouses, distribution centers, retail outlets. The activities of Outdoor Power Center involve estimating, purchasing, inventory management, production, quality assurance, scheduling, information management, sale, distribution and customer service.  Donald Saxon, owner of Outdoor Power Center, should adopt the effective supply chain management system to plan, design, control and manage each activities and facilities of all its stores. As described above, the operation and performance of Outdoor center is totally based on fairly loose approach, it is not a good practice as it results in increase in cost, inefficient maintenance and control of assets and inventory and low productivity. The bwlow figure tells the effectiveness of whole supply chain management:

 

Inventory Control

The most important inventory control practices, which Outdoor Power Center should follow:

  • Equipment and Inventory Accountability

All the inventory and equipment used in each stores should be recorded accurately by their managers. So that, there should be complete record of quantity of equipment available in every store. By equipment accountability the shortage and own sourcing issues can be resolved. By keeping a record of equipment, the optimum productivity and efficient performance can be achieved. As the Strathpine center & Ipswich center are purchased on going concern business so the equipment and inventory should be recorded when the purchase is done rather than when the amount is paid against such purchases.

·       Equipment/Property Transfers

As it is already discussed that each store works autonomously and in case of shortage of any equipment or product, it takes from other store. And there is not as such integrated approach in property or equipment transfer from one store to other store which means there is lack of proper and accuracy of accountability in Outdoor Power Center. According to operation management principles, a request should be made to accounting by the owner or CEO of an organization, before moving or transferring any equipment (tagged or fixed items) or inventory (either the quantity is small or large) from its store, warehouse or its own outlets. Moreover, the transfer or movement should be scheduled in advance for effective maintainece of inventory and equipment.

·       Inventory/ Equipment Retirement

The retirement or disposal of inventory or equipment should be recorded properly to the Purchase department of Outdoor Power Center. The retirement might be theft, trade-in, sale, or irreparable damage to inventory or equipment which reduce its value-added feature. The information of retirement of equipment should also be given to Maintenance department to measure the salvage capacity of an inventory/equipment.

·       Cycle Counting

Cycle costing is a key method to maintain the inventory accurately, which highlights the accomplishment of each store current procedures and keep accountability of possible error causes. This method requires some limitations, for Outdoor Power Center: the perpetual inventory count maintenance or 100% counts i.e. full-building counts could be applied.

·       Process Auditing

Estimation and measurement of proactive error source require a proper process audit. The process audit should be done timely and on early stages, it could be done at each store even at each transactional step of each store in case of Outdoor Power Center (From sipping to receiving the inventory purchase)

Demand Forecasting

Analyzing the demand forecasting is the best method to overcome all costs (Shortage cost, Risk cost, Maintenance & Repair cost, over supply cost, safety cost, incremental cost etc.) related to inventory. The demand forecasting should be done by manager for every type of inventory used. For this purpose, unique max-min management should be developed keeping in mind the time and usage of each inventory as it tells the quantity and time at which that inventory is required.

Recommendation

As per above solutions of poor inventory management system, the following action plan is developed that is:

There are some further recommendations, the Outdoor Power Center should focus:

  • It is recommended that Brisbane Outdoor Power should adopt the automated inventory management system to track the inventory of each store and also highlights which store and where (at which transactional step) have done wrong. There should be inventory consultant to review the stock and inventories used periodically, control and improve the storage of inventory and advice you regarding purchase and maintenance of inventory.
  • There should be some strict polices, standards and procedure that should be followed by everybody as doing everything on trust and belief is not a good practice
  • There should be check & balance on every transaction of each store.
  • Centralized approach should be adopted so that all internal and external factors should be better assess and solve.
  • Specialization and scheduling should be done regarding production and sale of products among stores and within the stores (department wise).

 

Conclusion

Brisbane Outdoor Power Center is considered as best company in its industry due to its product quality, skilled staff and after sales services. It targeted the potential customers of Mt Gravatt, Strathpine & Ipswich area which involves both commercial and consumers.  The Pareto analysis shows some error or flaws in its inventory management system that depicts the inefficiency in productivity and performance. By implementing some inventory management policies and standards like supply chain management, inventory accountability, it can easily enjoy more economies in scale. In fact, by improving the inventory management system, it can easily expand its business and target the more commercial areas of other cities of Australia.