- How Purchasing and Inventory Functions should be Structured
- Differences in Purchasing and Inventory Management procedures
- Application of Inventory Management Concepts in the Company
This paper is presents a report from the purchasing manager to the CEO, Grandiose Motors, Mr. Felix Fabulous. The paper presents recommendations the purchasing developed by the purchasing manager regarding structuring the purchasing and inventory functions of the motor company. The recommendations were formulated from the company’s case study titled “the growing pains at the Grandiose motors.”
The report will also address the differences that might arise in the purchasing and inventory management policies as a result of dealers purchasing different products from the company. The report further makes more recommendations to the CEO on how he can apply principles of inventory management to reduce space requirements without compromising on the quality of service offered to the customer,
Grandiose motors had just established a fourth network dealership which unlike the previous dealerships will operate as an auto supermarket. The auto supermarket is meant to stock and sell a range of vehicles including; Nissans, Volkswagen, and Toyota (Gardiner, 2008, p. 78). The company enjoyed a steady rise for a period of fifteen years after purchasing a dealership in the formerly bankrupt Mitsubishi Company.
The rise was attributed to three factors; first was volume sales that ensured quick turn-over in stock, the second attribute to this was a sales mechanism that allowed customers check price tags on each car and choose the most affordable. The third strategy the company utilized was after sales service; customers to were more confident to purchase cars from Grandiose motors because of the assurance of this service. There is need for Grandiose motors to establish a proper growth plan as it acquires new dealerships to avoid scooping more than the company can manage.
How Purchasing and Inventory Functions should be Structured
As Grandiose seeks to expand and grow its business networks, it is important that a clear plan is established to guide the expansion of the network. Gardiner (2008, p.83) suggests that companies seeking to expand their networks should first establish “clear policies, procedures and control system” which should ultimately form a road map in the expansion process. Lack of policies and control systems would mean the company is guided by greed or convenience in the process of acquiring new dealers to expand the market reach.
The expansion process should always follow the laid down procedures; the procedures ensure that every step is analyzed to establish whether the deal is profitable or not. Procedures considered in acquisition of new dealerships include; ensuring that all legal requirements are met, carrying out a visibility study to establish appropriate strategies of developing a profitable venture and developing a plan on how the new dealership should be run. Zuckerman (2002, p. 118) indicates that control systems are very important in the expansion process; the systems ensure that the company expands within the set policies and procedures.
The company should develop a comprehensive forecast plan that focuses beyond the existing dealerships. This way, the company will be able to manage existing dealerships and prepared to manage new dealerships at the same time. Developing a narrowed forecast plan implies that the company is prepared only to manage what it has already established and incase of a new dealership, the management will have to go back to the drawing board to re-strategize. An enlarged development strategy makes the company more ambitious and ready for other dealerships that can allow the company to expand its network.
Grandiose Motors should develop a business link between its vendors and the new dealerships. It would be expensive to engage new vendors to supply to the new dealership. Engaging new vendors to supply to the new dealerships would increase the cost involved in brokering the deal between the dealers and the vendors. It can also be a time wasting affair as the process of picking the right vendor is not an easy one. Hugos (2006, p.213) suggests that when a company expands by developing new dealerships, the cost of supplying products to the new dealerships can be maintained low by maintaining the old vendors.
The inventory can be managed well by entering only the most essential products. For Grandiose motors for example; the main products that can be included in the inventory should be; batteries, alternators, air-conditioners, lubricants and oils. Other products that the company uses should be bought from local parts shops on day to day basis (Cali, 1993, p.89). This approach reduces unnecessary items in the inventory, loading the inventory with many products makes it hard to manage.
Grandiose Motors should consider implementing an automated EDI system for inventory management. The system should used to link the dealerships and interfaces them with the suppliers. The EDI system can be used to accurately monitor stock flow between the dealerships, suppliers and the consumers. Muller (2003, p.78) indicates that the electronic data interchange system facilitates an efficient sharing of information between parties involved in the supply chain system. Quick and reliable sharing of information between the supply chain parties enables them to supply products to required destinations well on time (Cali, 1993, p.164).
The electronic data interchange system automatically alerts the supply chain parties whenever the inventory levels rise or reduce. This information is important for effective management of the inventory; the supply chain team is able to accurately deliver products to consumers without time wastage. The system considerably reduces wastage in other resources required in delivering products to consumers.
The company can also utilize the strategy of inventory pooling; this strategy allows different dealerships to use the same inventory. Inventory pooling as pointed out by Frazelle (2001, p.69) helps eliminate overstocking of products in any of the dealerships. A pooled inventory allows products to be moved from one dealership to another incase the product is not available in one of the dealerships and there is demand for it.
Vendors should be allowed to manage inventory; in this case, suppliers will be informed of when new stock is required. This approach ensures that suppliers replenish the vendors stock every time they are called upon to do so. This would be a good approach for reducing shortage of products among the vendors. Since the vendors are directly involved in the sale of the stock supplied to them, they are in position to establish when more stock should ordered.
Differences in Purchasing and Inventory Management procedures
Grandiose dealership networks sometimes purchase products from the local distributors. This approach can be cost effective sometimes as the dealerships have a choice to look for the most affordable distributor to supply to them. This approach presents numerous challenges to the company; the challenges can be resolved by implementing appropriate strategies Daft (2009, p.104) indicates that by identifying a single supplier capable of supplying a wide variety of products, the company reduces confusion in the supply chain.
Sourcing products from a single supplier has an advantageous in that the buyer can negotiate for a better price deal on the volume of the products bought….. This deal can not be attained by sourcing products from different distributors as the volume purchased is divided among the different suppliers. The reduced prices based on volume purchase helps the company attain economies of scale. Having several players in the supply chain system makes it hard to manage the inventory as this makes it more loaded.
Application of Inventory Management Concepts in the Company
Supply chain management (SCM) has played an important role in helping business grow and achieve more on what they do. SCM encompasses all aspects of coordination, configuration and generally improvement of consistency of operations in a given establishment. SCM integrates new technology and human resource capacity to enhance optimum management and reduction of inventory requirements thus providing much needed support to businesses hence promoting competitiveness edge in the market (Mentzer, 2001, p.89).
Supply Chain management will greatly play a significant role in helping Grandiose Motors reduce its inventory management thereby increasing service level. Supply Chain Management has various modules and functions which can help Grandiose Motors organize its inventory and management functions (Mentzer, 2001, p.86). Transportation management is one of the concepts of supply chain management system which can help Grandiose Motors reduce and streamline its transport system. Most businesses which deal with a broad range of businesses such as shipment related businesses incur challenges.
Customers have been known to demand a wide variety of delivery choices but for less this has been coupled up with global trade logistic regulations. This has affected and caused pressure on companies like Grandiose Motors. Transportation management assists companies not only to make them survive, but to thrive in today’s most competitive markets (Mentzer, 2001, p.83).
Transportation management facilitates an organization to effectively manage and streamline its operations and especially when an organization does international business, hence shipment and its lifecycle is effectively managed thus more outcome is realized in its SCM, Proper and efficiency allows connection with other trading partners in the same field and this promotes and standardizes management right from origin to the final destination whether it was internal or external shipment
With Transport management system at hand, Grandiose motors will be able to exercise transportation planning and execution thereby management of; execution, planning and optimization, analysis and reporting can be settled (Blanchard, 2007, p.69). Transport management enhances wider participation and assists businesses to have an international scope and outlook this makes it possible for taking control of its inventory and creates efficiency in its supply chain. A cost reduction improves procurements and subsequently leads to customer satisfaction.
The SCM incorporates challenges which have a specific functionality that incorporates different perspective of supply chain Management and its unique business challenge (Blanchard, 2007, p.73). This ensures the company manages its complexities thereby increasing profit, competitiveness and growth. In meeting its objectives and remaining relevant in the new dealership, Grandiose Motors will benefit by becoming supply chain leaders, managing growth and improving its revenue and market share, improving customer care to influence competitiveness and lastly it will reduce its supply chain operational costs thus increasing company’s profit
Grandiose Motors will benefit from using the supply Chain management system. The SCM helps in strategizing, analyzing and designing decisions support in related chain networks. A business which develops this methodology understands the secrets to success. Strategizing assists companies to meet the shortfalls of expansion and competition or risks however, companies should have the ability to overtime appraise and strategically support these assets in order for better planning and management.
Strategic Network design (SCM) helps organization to fine tune its supply chain by allowing them to determine its location, number and the available services in place to meet customers service level goals (Bose,2006,p.78). As an organization expands more tools are made available to help reengineer the network to accommodate the changes this change involves; labor, supply, demand and outsourcing proposals among other activities to maintain a powerful supply chain.
Strategic Network Design (SND) provides a good forum which assist in modeling and optimizing features which helps those involved such as the planners and designers to manage efficiently the supply chain network (Bose, 2006, p.88).
From this, it is when it will assist to perform profit and cost analysis. when SND is combined with Tactical planner, which is a time phased planning application, it improve customers service because it will tell the customers where to buy their vehicles and the Grandiose will benefit by the solution providing a place where inventory can be kept and aligning demand and supply processes within the company so that a complete, cost optimization supply chain plan (Bose, 2006, p.135).
Radio Frequency Identification (RFID) assists companies in making inventory visible. Moreover, it helps tracking and tracing of inventories in supply chain easier. the RFID solutions links distributors, retailers, suppliers and other players in the field and allows them to swap products and trading information at the same time generating compliant RFID labels. This solution provides value in operational and processing in most businesses (Müller, 2003, p.108). The importance of embracing RFID for Grandiose will be; it will improve government and industry safety compliant mandate, it will improve tracking and tracing of motor vehicles by the process of inventory and location, it will reduce significantly bar code scanning, internal and outbound processes will be automated and inventory will be visible at an item level (Müller, 2003, p.123).
Demand planning has been another tool for enhancing most businesses. Grandiose Motors will benefit by adopting this SCM. Demand planning helps businesses to forecast and shape customers demand with utmost accuracy (Toomey, 2000, p.39). Companies appreciating this customer service have realized the essence of effectiveness supply chain planning. A business that focuses on customers needs such as the Grandiose Motors will effectively have a panorama of its business i.e. inventory, distribution and its buying plans for its new branch (Toomey, 2000, p.69).
SCM demand planning helps organization, to forecast and shape the needs of customers in a more enhanced manner. Market statistics and knowledge that is accrued from both inbound and outbound in an organization helps in indicative to business demand plans (Wild & Wild, 2002, p.96). Demand planning SCM plays an important role in laying a foundation for sales and operations plans in a company and it significantly helps businesses to realize quantifiable improvement.
SCM demand planning will help Grandiose motors to improve its forecast accuracy, increase on time delivery performance, and reduce obsolescence in an organization and lower production costs (Wild & Wild, 2002, p.121). Grandiose Motors can choose to implement Demand Planning SCM at a single site or at a central location with web based capability to effectively manage its distributed marketing channel. This will improve accuracy in forecasting which consequently will improve inventory and reduce obsolescence in the companies operations.
Warehouse plays an integral part in any business operations. The aim of meeting customers’ demands and having the right place, time and conditions is paramount in realizing an organizations goal (Wild & Wild, 2002, p.145). Grandiose will realize the importance of inventory which helps in streamlining and aligning the resources which helps to satisfy the customers needs and helps to plays a big role in realizing optimization and resource distribution in regard to resource and distribution processes (Zuckerman, 2002, p.96). This is to ensure that the resources are timely delivered timely and much improvement is done on matters regarding supply chain management.
Warehouse supply management helps to make an organizations inventory by reducing drastically the resources they use on its operations, labor productivity is increased in addition to labor and lastly warehousing management SCM increases order rate (Zuckerman, 2002, p.137). The capabilities of Warehouse management include inventory management, slotting and optimization, cross stocking, labor management and work and task management. These capabilities will help Grandiose Motors to move forward in its business operations. The software not only manages an organizations needs but also helps organizations in maximizing product placement, productivity standards efficiency (Zuckerman, 2002, p.188).
The goal of most companies is to develop and expand their networks to reach out to many consumers as possible. To achieve this; company management boards go out for mergers and acquisitions as wells establishing dealership networks. It is important that a company establish a plan that indicates policies and procedures of establishing new dealerships. The plan should also contain control systems which spell out the maximum risks to allow in new dealerships.
The inventory and purchasing management should be well enhanced so as to reduce loses and waste of resources. Companies that have projected developing dealership networks need to forecast beyond their existing networks so that the high targets they set gives them capacity to manage new dealerships.
After establishing new dealerships, it is important that the network identifies a single distributor that is able to supply a wide variety of products. It is possible to achieve an economy of scales by sourcing all products from a single supplier through volumes.
This gives the company a position to be able to negotiate for price cut, engaging several suppliers gloats the supply chain and can cause confusion. It does not also provide the company the advantage to negotiate for better prices with the suppliers. Most business operations in the present world are carried out by technological tools; the supply chain has been enhanced by the use of electronic data interchange system and the RFID technology. Companies looking forward to remain competitive in the present business environment must shift their business operations to automated systems.
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