Inventory Management for Green Valley Bakers - Research Paper Example

Green Valley Bakers & Inventory Control Introduction Green Valley Bakers is a local US company that specializes in the baking of bread and cakes. The company was started around ten years ago and was the brainchild of Raiz Van Dough, a third generation Dutch baker. His father had migrated to the USA following the Second World War and it was his dream to carry on his father’s and grandfather’s legacy. The bakery was all he could give to his son Chez Van Dough and their family on his deathbed. It is the mission of the Van Dough family to carry on the work initiated by Raiz and make the name of Van Dough breads and cakes famous not only through Green Valley, California but if possible throughout the region and the nation at large. Big dreams take time to achieve and to this end, Raiz had sent his son Chez to France to study the art of bread making at the bakery of a mutual friend, Monsieur Mattieu. True to his friend Raiz, Mattieu left no stone unturned in teaching Chez the art and science of baking bread first hand. Chen has now returned with new ideas on how to improve the processes and procedures at Green Valley Bakers. This paper will talk about some of them. The Processes Involved in Making Bread First let us talk about the processes of baking bread. Bread making is a relatively simple process but it takes some time to master. Grain, water and baker’s yeast remain the basic ingredients. Bran, germ and endosperm are ground together to bake the coarser variety of breads, while the bran and wheat germ are removed to make softer bread of the industrial variety. Although nutrition experts advise that brand and wheat germ breads are better for health, their lack of palatability is a factor that prevents widespread demand and use. White flour bread may be enriched with minerals and vitamins, and fortified with calcium and fiber to improve its nutritional value. All in all, it is a staple part of the American diet and is a good source of low fat, complex carbohydrates. Salt, sugar, raisins, honey or nuts can be included in the mixture to produce bread of different varieties and tastes. Bread is today seen not only as a breakfast item but also serves for making sandwiches or eating with salads or curries at lunch. It also goes well with tea and jams and can supplement biscuits and pastries at tea. As for dinner, bread is an indispensable part of the meal unless rice or cooked meats are available (Open Library Project, 1994). For making industrial bread on a large scale as Green Valley Bakers envisages, flour that has been sifted is poured into a mixer of the industrial variety; then it is filled with tempered water. A certain amount of yeast is added. After this, raisins, nuts and other ingredients are added if desired to make different varieties of bread. The bread is then fermented and the resulting dough is later cut into shapes of uniform size. The shapes are then molded and in the final stages they are put on to another machine that produces loaves as output. The last stage involves slicing and packaging after the bread has cooled. This has also been automated by the industry (Harper, 1995). How Productivity and Processes Can Be Improved at Green Valley Bakers It is seen that presently Green Valley Bakers employs a total of 25 casual staff while 5 people are the owner’s family and children. Working in groups of five, each of them performs different functions related to the baking of breads and cakes. While Green Valley Bakers prides itself on producing hand-made breads and cakes, it is very true that it will not be able to expand if the processes are not automated. It is also necessary to meet quality control standards and have proper space for display of breads. Unfortunately bread is a perishable item and at best may have a shelf life of 48 hours under room temperature. It may be refrigerated in order to preserve it for a longer period of time. So the stocking and delivery of bread must be coordinated with the production quantity. This is something that can be gleaned only from observation and experience. If we define the operating cycle as the time needed for the conversion of raw materials into work in process and then finished goods to sales to inventory purchase all over again, then a bakery has 2 days of operating cycle per full process, giving it an average of around 180 times that inventory has to be turned around. This is nothing short of phenomenal but is nevertheless true considering the shelf life of bread to be 48 hours at room temperature. In order to improve productivity, Chez will have to finance the acquisition of a small industrial size processor, whereby the entire process can be automated. It is not likely that more than 5 employees will be required to be on hand at all times once this is acquired. To make the availability of flour and other ingredients possible on a regular basis, it may also become necessary to buy out a local flour mill to ensure supply. This is an example of backward integration. The bakery can also stock raisins, nuts and other ingredients to be used as needed or as demand dictates. This effort may be supplemented by a marketing campaign involving advertisements on television relating to the varieties of bread that Green Valley Bakers have to offer. It is suggested to automate the process first, increase demand through marketing efforts and then buy out the flour mill once demand has increased. Green Valley Bakers could also engage in carrying out baking contests for breads and cakes in the immediate neighborhood and give advertising support to locally aired cookery programs. Offering special hand-made breads on the side may be viewed as one of Green Valley Bakers’ specialties- one that makes it stand out compared to the competition. It is clear that the composition, variety and unique taste of the Green Valley Bakers family recipe can be used for competitive advantage here (Author Unknown, 1993). How to Control and Use Inventories In the traditional bakery processes, inventory at any time consists of the raw materials (flour, yeast, nuts), work-in-process (bread in the process of production) and finished goods (bread packaged or on display ready for sale) that is available with the bakery. However storage costs and transportation costs of inventory both from suppliers and to customers and distributors can entail added costs for the bakery. The Japanese were among the first to recognize this reality and to this end have created the concept of zero inventory or JIT (just-in-time) inventory management processes for their factories and industries. A backup procedure must be available in case anything is wrong with the original supply line so that productivity is never halted for long periods of time. It is the cooperation of all entities in the supply and production chain that makes the overall success of the business and its partners possible. Green Valley Bakers at present has two departments- the production department and the service department, so we can assume that these activities have been covered, however it is now desired to scientifically improve the process and the flow of goods and services and good inventory management is definitely a part of the overall process improvement. In fact the concept of EOQ or economic order quantity would not be out of place to implement here. Economic order quantity ensures that supplies are only ordered when needed. As such there is a minimum of stocking as the supplies are put into production as soon as they are checked for quality standards. The bakery thus saves on storage costs. In addition to holding costs, there may also be inventory ordering costs involving the approval for funding and purchase of needed inventories for the bakery. Working out the economic order quantity helps minimize both these costs and also helps in establishing trigger points for the ordering of inventory. Economic Order Quantity is based on the formula: where Q * = optimal order quantity D = annual demand quantity of the product P = purchase cost per unit S = fixed cost per order (not per unit, in addition to unit cost) H = annual holding or storage cost per unit Once the EOQ has been determined using this formula, it will be beneficial for Green Valley Bakers as it will most likely minimize the carrying and order costs (Hax & Candea, 1984). At the other end, Green Valley Bakers also needs to minimize the cost of bread delivery to customers. Towards this end it could use one or two vans to make deliveries to the regular customers in the neighborhood at specified times according to confirmed orders placed on phone per week or month. In order to accomplish deliveries on a regional and national level, it will have to depend on established distributors, and set up packaging and delivery processes to vans as per an agreed schedule. Everything must go like clockwork and one or two day’s supply guaranteed with grocery stores and shopping marts in the region in case of any natural or manmade calamity. This seems all the more necessary owing to the inclement weather we have been having in the USA lately. The cost of delivery will have to be worked out with the distributors as well as the coordination of the production, packaging and bread loading schedules. It will also make sense to open up another outlet at a convenient vantage point in the city to both popularize and market Green Valley breads, cakes and other upcoming products. Conclusion We have thus seen how by using modern techniques and methods of production, Green Valley Bakers can improve its productivity, name and revenues on a regional or even a national basis. To ensure quality standards, bread supplied industrially could be marked as to production date and best-if-used-by date as well. References Author Unknown (1993): ’Bread-works' Program Takes the Work Out of Bread-making’. Bakery Production and Marketing, December 1993, p. 27. Hax, A.C. & Candea, D. (1984): Production and Operations Management. Prentice-Hall, Englewood Cliffs, NJ, pp. 135. Harper, R. (1995):’Bred to Rise’. Supermarket News, 30 Jan 1995, p. 21. Open Library Project (1994): Bakery Production and Buyers Guide. Gorman Publishing Company. Read More