The Brisbane Outdoor Power Centre which began its operations from a single retail store, now has stores in three locations. These stores operate independently from each other and has their individual systems of purchase and inventory management. Since all the three stores were making good profits, the management did not bother to scrutinize the operational level details of these stores. As a result, these stores operate in a decentralized manner and the operations are not streamlined. Now that the owners, Donald and Louise Saxon, have opted to retire, Belinda Green is all set to overtake the business. Since she does not approve the present method of decentralized operations, she is looking forward to make some fundamental changes in the company’s operations. In this report the present system is studies and the inefficiencies of the system are identified. Finally some recommendations are made to enhance the present system and streamline the inventory and procurement arrangements.
The Current Purchasing and Inventory Management Processes.
The Brisbane Outdoor Power Centre has grown from an only store retailing the lawnmowers to a business selling a wide range of all type of gardening equipment in its three distinct stores. The group was founded by Donald, who initially managed one store and eventually expanded business by acquiring two more stores at different locations. All these stores are doing good business and making profits. Donald himself managed one store at Mt. Gravatt and did not paid much attention to the operational details of other two stores.
Currently all the three stores of the group are managed by independent policies regarding management of their sourcing as well as inventory. The suppliers from which the regular purchases are made by each of the retail store are different from the others. This sort of arrangement might have repetition of work by the procurement department of the three stores. All three might be giving different orders and requirements to the same suppliers. This presents a weak position of the company as there are multiple negotiations efforts. The collective order to the supplier would give the company better negotiating position (Mackelprang, Robinson, Bernardes & Webb, 2014). Also, it could be very much possible because of difference in negotiating parties the same supplier might be selling same products to the three stores of Brisbane Outdoor power Centre at different prices. The possible costs saving is being wasted here by the stores by negotiating individually.
The management of procuring and inventory arrangements have not been streamlined in a systematic manner, because the owner of the group Donald did not bothered to intervene the operations of the other stores, mainly because they were giving good profits. Presently these stores have different products and brand in their stocks. This would eventually give a varied experience to the customer when he visits the different store.
There is not defined combined approach for procurement of particular product by one store from another in case of shortage. In short the functions of all the stores are independent and the company on a whole is decentralized. Each retail store has its own products stocks, brand collection and individual choice of suppliers. Each store maintained its own inventory and safety stock on the basis of decisions made by the store managers. The stores have their separate visions, goals and values. Although till now these methods have served the purpose of these retail stores. However, for the future growth of the Brisbane Outdoor Power as a group, it is necessary that the appropriate changes are incorporated in the procurement and inventory management system. This would eventually help the company to examine the potential ways of cost savings and also enable the uniformity of the customers’ experience at any store of the company.
The current inventory management system is not good for the company as all the three stores have their own inventory management system.
Advantages and Disadvantages of the Currently used Processes?
Advantages of Current Process
- The decision making at each store is quick since they are operating independently and the approvals from head office of group is not needed (Yamak, Souchon & Fr?hlich, 2011).
- The locally managed stores are at advantage since they have knowledge about their area of operations like the coming festivals, event of their area, etc. and hence they can arrange for their stocks accordingly. The decentralized management of inventory and purchasing gives power of decision making to the local managers (Raza & Turiac, 2016). Like in the case of Ipswich, the area which has large estates and hobby farms the store have provisions of range of gardening equipment and ride-on mowers.
- The wider range of customers are served by these stores, especially when they store goods from variety of brands. The sale of a particular brand in a given store can be individually assessed and further stock could be arranged in accordance with the customer preferences.
- Since the decision making lies with the individual store managers, the enjoy higher control and possesses greater sense of ownership. This helps in effectively operating the stores. The management when at the same local level as the consumers, is able to better understand customer demands and have greater relationship with the customers (Kreipl & Pinedo, 2004).
Disadvantages of Current Process
The decentralized purchasing and inventory management systems have various disadvantages too. Some of these are:
- This sort of arrangement might have repetition of work by the procurement department of the three stores. All three might be giving different orders and requirements to the same suppliers. This presents a weak position of the company as there are multiple negotiations efforts. The collective order to the supplier would give the company better negotiating position. (Frazelle, 2002).
- Also, it could be possible the same supplier might be selling same products to the three stores of Brisbane Outdoor power Centre at different prices. The possible costs saving is being wasted here by the stores by negotiating individually. All this leads to 2 things, first there is additional effort organization is spending on buying. Secondly, there is potential of saving that is lost because each store is buying at different rates
- Since the orders to suppliers are given by stores separately, the bulk discounts and higher negotiation of prices is not being utilized (Harland, Brenchley & Walker, 2003).
- Also the disadvantage is that maybe because of strong relationship with a supplier is enabling one retail store of the group to get goods ate cheaper rates than the other retail store of the same group (Chang & Harrington Jr, 2002).
- Each retail store has its own products stocks, brand collection and individual choice of suppliers, leading to different customer experience in different stores (Urban, 2005).
- The issues like under or over purchasing, maintaining individual safety stock at each store, causes increased level of inventory for the entire group, thereby locking the money that could have otherwise been used in some better way (Chan, Shen, Simchi-Levi & Swann, 2004).
- Since bulk purchases are not being made bulk discounts and offers are thus not being availed because of decentralization.
What Supply-Chain and Inventory Management Concepts Would Help the Company Increase Efficiency and Reduce Investment whilst Maintaining Adequate Stock Levels?
The important concepts of supply-chain and inventory management which would be beneficial for the company to increase are the following:
Reducing the Safety Stock
At present the inventory and safety stock is maintained by each of the three stores individually. This leads to high level of inventory which has great scope of minimization. The Brisbane Outdoor Power would do better if all the safety stock is maintained at only one of the store which has facilities to hold such stock (Germain, Claycomb & Droge, 2008). The stores could make use of this safety stock for replenishment as and when required. By doing so, the company’s capital tied up in excess safety stock would be free for another investments or other use for the benefit of the group at large.
Using the Economies of Scale
The company must make good use of economies of scale. The collection of data and information from all the stores must be done by the management and study for identification of various business scenarios must be done. Accordingly, appropriate action plans must be formulated by the company. Some of the possible cases could be:
Same materials bought by all three stores from different suppliers: In such scenarios the study of all the three stores must be undertaken to determine which store is paying the least price. This would help the company to better negotiate and avail discounts on bulk purchases (Hingley, 2001).
All three stores purchasing from same supplier: In this situation, the identification of the lowest prices being paid by the stores must be done and negotiation for bulk purchases could be done for all the stores together.
All three stores purchasing different products from different supplier: In this kind of situation a thorough streamlining is needed in which few best suppliers must be chosen to fulfill needs of all the three stores.
Economic Order Quantity (EOQ): The effective us of EOQ must be done for the products which are commonly in demand at all times and have relatively small lead time. When ordering lesser inventory, the cost of holding is reduced, however, the number of orders become more and frequent, thereby increasing the cost of ordering. Likewise, bulk ordering would require greater storing space and hence higher holding costs (Lev, 2001).
Dealing with high lead time products: The reorder point strategy could be used for the products that have high lead time. This ensure automatic order placement when the stock reaches certain fixed level. This level could be determined by the lead time and safety stock analysis (Holsenback, & McGill, 2007). This would ensure that the supplies are constant as and when required and not held up unnecessarily in excess inventory.
Recommendations for Ms. Green with Respect to Restructuring the Purchasing and Inventory Functions of the Company?
For the restructuring of purchasing and inventory functions of the company, Ms. Green can make use of effective supply chain management concepts. The first step must be centralization of the system. By making use of software available in the market like the MYOB, QuickBooks, Xero, etc. this could be achieved (Shukla, Agarwal & Shukla, 2012). The purchase order can be centralized with different bill to and ship to options. Company can thus take advantage of bulk order discounts (Soosay & Hyland, 2015). Comparison of the product quality from various suppliers, lead times, reliability, etc. could be done and then the best suitable supplier must be selected as per priorities of quality, price and delivery time. The EOQ is employed in order to reduce the cost of ordering and holding the inventory. Hence the EOQ is an appropriate quantity of inventory which is achieved by reducing the costs of ordering and holding.
The further recommendations for the company is to establish its brand name as a one single group. It would not only build the customer confidence but also open up the opportunities for the company to scale up its business and even plan for expansions in the future. While streamlining the purchase and inventory management would leave the company with extra savings of cost and efforts, the same could be used by the management for better use like investments and growth of the company. Following these suggestions would help Ms. Green to take the company to greater heights of success in the near future and sustain growth for long term.
It could be said that Belinda Green has identified the problem issues for the Brisbane Outdoor Power Centre and the issue of decentralization is being figured out.in this system all the stores were operating separately, maintains their individual inventory and purchase systems. Also, there is possibility that all the three stores are negotiating foe the products from same supply and the supplier might be giving different rice quotes for different stores. This report gives recommendations for the new manager to progress the system on the basis of centralization. By doing so the company could have higher visibility and growth ensuring sustained success in the business.
Chang, M. H., & Harrington Jr, J. E. (2002). Decentralized business strategies in a multi-unit firm. Annals of Operations Research, 109(1-4), 77-98.
Chan, L. M., Shen, Z. M., Simchi-Levi, D., & Swann, J. L. (2004). Coordination of pricing and inventory decisions: A survey and classification. In Handbook of quantitative supply chain analysis (pp. 335-392). Springer US.
Frazelle, E. (2002). Supply chain strategy: the logistics of supply chain management. McGrraw Hill.
Germain, R., Claycomb, C., & Dr?ge, C. (2008). Supply chain variability, organizational structure, and performance: the moderating effect of demand unpredictability. Journal of operations management, 26(5), 557-570.
Harland, C., Brenchley, R., & Walker, H. (2003). Risk in supply networks. Journal of Purchasing and Supply management, 9(2), 51-62.
Hingley, M. (2001). Relationship management in the supply chain. The International Journal of Logistics Management, 12(2), 57-71.
Holsenback, J. E., & McGill, H. J. (2007). A Survey of Inventory Holding Cost Assessment and Safety Stock Allocation. Academy of Accounting and Financial Studies Journal, 11(1), 111-120.
Kreipl, S., & Pinedo, M. (2004). Planning and scheduling in supply chains: an overview of issues in practice. Production and Operations management, 13(1), 77-92.
Lev, B. (2001). Economic order quantity model extensionsEconomic order quantity model extensions. In Encyclopedia of Operations Research and Management Science (pp. 223-225). Springer US.
Mackelprang, A.W., Robinson, J.L., Bernardes, E. and Webb, G.S., 2014. The Relationship Between Strategic Supply Chain Integration and Performance: A Meta?€ђAnalytic Evaluation and Implications for Supply Chain Management Research. Journal of Business Logistics, 35(1), pp.71-96.
Raza, S. A., & Turiac, M. (2016). Joint optimal determination of process mean, production quantity, pricing, and market segmentation with demand leakage. European Journal of Operational Research, 249(1), 312-326.
Shukla, S., Agarwal, S., & Shukla, A. (2012). Trends in Cloud-ERP for SMB’s: A Review. International Journal of New Innovations in Engineering and Technology (IJNIET), 1(1), 7-11.
Soosay, C. A., & Hyland, P. (2015). A decade of supply chain collaboration and directions for future research. Supply Chain Management: An International Journal, 20(6), 613-630.
Urban, T. L. (2005). Inventory models with inventory-level-dependent demand: A comprehensive review and unifying theory. European Journal of Operational Research, 162(3), 792-804.
Yamak, A., Souchon, T. and Fr?hlich, E., 2011. An Empirical Analysis of the Benefits and Significance of Strategy Enablers in the Implementation of Purchasing Strategies. In Supply Management Research (pp. 269-289). Gabler.