Purchasing and Inventory Management - Essay Example

?Explain What the Current Situation Is, What Problems Are In Evidence and How Those Problems Should Be Addressed Executive Summary The report intendsto depict the significance of purchase and inventory management in the context of the modern day business scenario. It would further analyse the provided case scenario and would illustrate the differences between the policies of single supplier inventory management and multi-supplier inventory. The report would also intend to evaluate the weaknesses in the inventory management of Lancaster Motor Group and provide certain inputs that could be used for the welfare of the company. There are different inventory models and policies for single supplier and multiple suppliers and allied benefits as well as drawbacks for each of them which would be evaluated in the report. Certain recommendations related to purchasing and inventory functions would also be rendered so that the existing difficulties can be alleviated by a considerable extent. Table of Contents Executive Summary 2 Introduction 4 Conclusion 13 References 14 Introduction Inventory is defined as the stock of materials or any other item that is being used by an organisation. It is further defined as the idle resource of any kind that has a considerable economic value. It has been observed that inventories are supervised in order to meet the future demands of the process of production. The term ‘inventory management’ is regarded as the process of maintaining the finished goods, and the semi-finished raw materials of companies or any other business. It has been learnt that efficiently managed inventory would result in an increase in the revenue by cutting down the cost of the company. The process of inventory management commences as soon as the company starts its production and orders the required raw materials for the same. In case of a retailer, the process commences as soon as it places an order to the wholesaler. Effective inventory management would enable companies to obtain maximum satisfaction which in turn would enhance the performance of the business (Namagembe & et. al., 2012; Eckert, 2007). It has been observed from the case study that Lancaster Motor Group deals in selling especially car products of various brands. The company faces certain difficulties in purchasing and managing inventories for the parts and materials of diverse brands for providing services to the customers. The Chief Executive Officer (CEO) of the company is concerned about the future requirements of vehicles parts and materials to meet the ever-increasing needs and demands of the customers. Based on the understanding of the case study, the report intends to illustrate the differences in inventory policies when there are multiple suppliers involved. The report would further discuss about the weaknesses in the current inventory management practices of Lancaster Motor Group and recommend appropriate measures to tackle the difficulties particularly related to purchasing and inventory function. Q.1. How Might Purchasing And Inventory Management Policies And Procedures Differ Because The Dealerships Purchase Different Types Of Service Parts And Materials (E.G. Lubricants Versus Genuine Parts) From Different Types Of Suppliers? Galena Markovic was quite concerned about the future prospect of the company. She did not want the company to face the problem that other companies are facing with regard to managing the purchase of varied parts of automobiles in future. As it has been noticed that the company had a good reputation in terms of the deliverance of services, she became more concerned about its operations. For these reasons, she began thinking regarding supply chain and inventory management to resolve a bit of her concerns and pressures. However, as she is selling the product of four companies, she would have to buy the parts from various suppliers (i.e. multiple suppliers). In this regard, she would need to follow inventory policies different from that of the usual inventory management policy of single supplier. When a company purchases its products from a sole supplier, it has to be completely dependent on specific group of people for its business operations. It has been further observed that single supplier inventory management would reduce the cost as well as the time of the company in purchasing and managing its inventories. In single sourcing inventory system, supplier has more power as compared to that of the company. In this single supplier inventory management, the supplier of the product would be responsible and concerned towards providing good quality products or materials to the company. It has been further analyzed that in this inventory management system the company builds a strong and close relationship with the suppliers and acquires the loyalty of the suppliers towards the company. This would in turn facilitate the company to attain the desired components on-time as and when required. Moreover, it has been noted that in this inventory management policy there is more stable schedules for the delivery of the good (Saxena, 2009; Deniz, 2007). On the other hand, the policy of inventory management when there involves multiple suppliers differ from that of the single supplier inventory management policy. A different inventory model would have to be implemented when there entails more than one supplier. It would be more costly to handle in comparison to the single supplier inventory system because of the existence of economics of scale. However, this cost can be overcome with the savings that would be made in the holding cost of inventories. Moreover, it has been noticed that the presence of multiple suppliers would force the suppliers to make prompt delivery. In this inventory management procedure, the company has to buy its products from different suppliers in order to fulfil the customer demand. It has also been assumed that a multi echelon inventory model is effective in managing inventories of multiple suppliers. Again, when multiple suppliers are involved, there is competition amid the suppliers which would enable the company to get the product at a minimum price. It has also been observed that in multiple supplier inventories, the company would be able to obtain maximum information about the condition of the market and the preferences of the customers. However, it has been assumed that in multiple supplier inventory management, there is a minimal chance for the company to make good relationship with the suppliers as they are many and would ultimately fail to gain the loyalty of the suppliers towards the company. Furthermore, as there is uncertainty in the timing of the supply, the company needs to split the required order in order to get the maximum number of the orders in time. There is a reorder point in multiple supplier inventory system. Once the reorder level is attained, the company would need to place or split its orders to the different suppliers in order to meet the future demands of the customers. Furthermore, it is worth mentioning that in multiple supplier inventory system, the company would be able to get the products irrespective of any strike or lockout in a particular region as it would possess many suppliers (Arda & Hennet, 2006; Minner, 2003; Geetha & Achary, 1999). Therefore, it can be observed that there is a considerable difference in the inventory management policies where there exist multiple suppliers. Q.2. What Do You See As The Main Weaknesses Of The Current Purchasing And Inventory Management Practices At Lancaster Motor Group, And How Could These Weaknesses Be Affected By The New Acquisition? Lancaster Motor Group is a reputed dealer in the automobile industry. The company distributes or sells product (vehicles) of more than one brand. As it sells the products of different companies, it is required to purchase parts and materials for the purpose of services of the products from multiple suppliers. There are certain weaknesses in this current purchasing as well as inventory management practices of the company. The most crucial weakness would be the loyalty of the suppliers. This is because, as the company purchases the parts of the products from multiple suppliers, it would be incapable to build a close relationship with the any of them which in turn would reduce the chances of acquiring the loyalty of the suppliers. At times, when there is a shortage or demand for a particular kind of parts of vehicles in the market, the suppliers may not provide the same to the company as there would be a lack of loyalty between them. With due consideration to this aspect, it would be crucial to understand that the suppliers may also increase the price of vehicles parts when there is a high demand for a particular kind of vehicle in the market. Furthermore, it has also been observed that in the current purchasing pattern of the company from multiple suppliers, it would also cause the company to get low quality parts which would certainly affect the reputation and the performance of the company (Bozarth, 2006; Mpwanya, 2005). In addition, it has been further noted that the company purchases the parts of the vehicles based on the historical demands. This aspect of purchasing could be quite risky for the company as the needs and the preferences of customers change from time to time. It has also been analysed that as the company makes sales of the products of different brands, there are various parts that are to be purchased and kept in stock that would be used in future. Therefore, in this context, the company has to invest a huge amount of monetary resources. Additionally, it has been apparently noticed that a large space is required to store the materials and parts that the company purchase from various suppliers for the different brands that the company is engaged with. Moreover, with the inclusion of the new brand in the company’s product portfolio the purchasing weakness of the company can become more severe. The investment on vehicles parts and materials of the company has also augmented and the space requirement has also been increased considerably as well as a new set of suppliers would also get associated with the company. Q.3. How Can Supply-Chain And Inventory Management Concepts Help Galena Markovic Reduce Investment And Space Requirements Whilst Maintaining Adequate Service Levels? It has been observed form the case study that the Galena Markovic was apprehensive about the investment that would be needed for managing the inventories as well as supply chain of the company. She was also quite concerned about the space that would be required for the storage of the varied service parts and materials. The concept of supply chain as well as inventory management has been observed to be quite effective in reducing the investment as well as the required space for the storing the product. It has been noted that inventory management involves the maintenance of the current assets in order to meet the future demands. Furthermore, the main intention of the inventory management is to reduce the total cost associated with the inventories. The prime purpose of inventory management would be to ensure proper delivery, provide quantity discounts as well as to reduce the order cost. Managing the inventories would enable Lancaster Motor Group to be capable of providing the parts of vehicles to customers despite at times them being not present in the market which would ultimately enhance the service quality of the company. There are various inventory management techniques which are useful in forecasting the demand for the product in the future. This would enable the company to acquire only the required inventory. Owing to the fact that there would be less amount of wastage of the product, it would ultimately decrease the total cost of the company in the longer run. Furthermore, it has also been noted that supply chain management would also be effective in reducing the total cost of Lancaster Motor Group. A proper supply chain would effectively enable to manage the flow of information from the customers to the company. It has been assumed that the information of the customers would be their verdict on the quality of the product and also to portray their future. Lancaster Motor Group is a reputed dealer and it is quite vital for it to understand the needs and the perceptions of the customers about the quality of the products as well as services. Furthermore, it has also been observed that through effective supply chain the company would be able to understand the needs of the customers which in turn would facilitate it to reduce the uncertainty of inventories for the company. This is because the company would have more time to think about the issues regarding the products and would be able to develop plans for them well in advance. According to the needs of the customers, the company would be able to increase or decrease the level of inventory needs of their own. This would also enhance the ability of the company to react to the demands of the customers. Ultimately, by improving the supply chain, the company would be much less uncertain about its inventory needs and would be certainly capable to reduce their total cost in the long run. It has also been observed from the case study that Galena Markovic was also concerned about the space that would be required for storage of the parts. In this regard, it is worth mentioning that both inventory as well as supply chain management would enable the company to presume the future needs of the vehicle parts which in turn would enable it to ascertain a certain space requirement for the company. Moreover, as the company would be relatively aware of the needs of the customers through the supply chain, it would be able to deliver more enhanced services to the customers, which would eventually strengthen the reputation of the company in the market (Seuring, 2002; Fredendall & Hill, 2000; McLaren & et. al., 2002). Q.4. What Recommendations Would You Make To Galena Markovic With Respect To Structuring The Purchasing And Inventory Functions For The Lancaster Motor Group Dealership Network? Based on the understanding of the case study, it has been comprehended that there are certain concerns and issues about the purchasing as well as the current inventory managing system of the company. Therefore, certain recommendation can be made to the company with respect to its dealership network’s purchasing and inventory functions in order to rectify the prevailing issues. Galena Markovic, the CEO of the company, would need to implement proper inventory models in its operations. As the company deals with various kinds of products, there are various multi-item inventory models that could be used by the company. A few of the models would include deterministic multi-item inventory model, stochastic multi-item inventory model and probabilistic multi-item inventory models among others (Mahaparta & Maiti, 2005). These models are quite vital in order to determine the stock that the company would need to store to meet the future demands for the products amid the customers. These are quite helpful in forecasting the future needs of the company. Moreover, the company would also need to reduce the large number of suppliers and would need to build a strong relationship with the suppliers in order to develop their loyalty for the company. It has been noted that these would enable the company to enhance the probability of getting the parts or materials of the products for services when there is a shortage of a particular product in the market. Additionally, a strong relationship with the required amount of suppliers would facilitate the company to obtain products within the specified time period and at a reasonable price. Conclusion From the overall analysis of the report, it can be summarised that purchasing and inventory management are quite significant for the company in the context of the modern day business. Inventory management would enable it to determine the inventory needs well in advance. Furthermore, it has been analysed from the case study that the CEO of Lancaster Motor Group was somewhat apprehensive about the future needs of the various vehicles parts and materials the company would need in order to provide services to the customers. It has also been noticed that there are also certain weaknesses in the purchasing and inventory management procedure of the company which are discussed in the report. There are certain recommendations provided in the report such as the use varied inventory models and building of efficient relationship with a limited number of important suppliers which would be helpful for the company to enhance its performance in the long-term period. Therefore, it can be concluded that effective inventory and purchase management would certainly reduce the cost of the company and would ultimately increase their profit level. References Arda, Y. & Hennet, J-C., 2006. Inventory Control in a Multi-Supplier System. International Journal of Production Economics, Vol. 104, No. 2, pp. 249-259. Bozarth, C., 2006. Introduction to Operations and Supply Chain Management. Pearson Education India. Deniz, B., 2007. Essays on Perishable Inventory Management. ProQuest. Eckert, S. G., 2007. Inventory Management and Its Effects on Customer Satisfaction. Journal of Business and Public Policy, Vol. 1, No. 3, pp. 1-13. Fredendall, L. D. & Hill, Ed., 2000. Basics of Supply Chain Management. CRC Press. Geetha, K. K. & Achary, K. K., 1999. On Two Supplier Inventory Models with Different Reorder Level. Information and Management Sciences, Vol. 10, No. 3, pp. 53-63. Minner, S., 2003. Multiple-Supplier Inventory Model in Supply Chain Management: A Review. International Journal of Production Economics, pp. 265-279. McLaren, T. & et. al., 2012. Supply Chain Collaboration Alternatives: Understanding the Expected Cost and Benefit. Internet Research: Electronic Networking Applications and Policy, Vol. 12, No. 4, pp. 348-364. Mpwanya, M. F., 2005. Inventory Management as a Determinant for Improvement of Customer Service. University of Pretoria, pp. 1-147. Mahaparta, N. K. & Maiti, M., 2005. Multi-Objective Inventory Models of Multi-Items With Quality and Stock-Dependent Demand and Stochastic Deterioration. Advanced Modelling Optimization. Vol. 7, No.1, pp. 69-84. Namagembe, S. & et. al., 2012. Information Sharing Inventory Management And Customer Satisfaction: The Case Of Manufacturing Firms In Kampala. International Journal Of Economics And Management Sciences, Vol. 1, No. 6, pp. 35-44. Saxena, R. S., 2009. Inventory Management: Controlling in a Fluctuating Demand Environment. Global India Publications. Seuring, S., 2002. Cost Management in Supply Chains. Oldenburg, pp. 1-11. Read More