Gulf Creative Ideas - Case Study Example

Gulf Creative Ideas al Affiliation) Summary Gulf Creative Ideas is a Qatar-based manufacturer of customized home furniture. Abdullah Al-kuary is the company’s sole proprietor. Over the years, the company’s revenue has grown immensely with sales spreading across the entire gulf region. As the company grew, it extended its sales to retail furniture outlets. As a result, the company began producing a new line of furniture. Despite the change of tactic, the company still dominates the market. It still maintains a single production process where both the customized and the standardized furniture are manufactured. Both lines of product compete for the company resources. Recently, the standard line of furniture has seen a significant increase in sales. As a result, the company has increased the labor hours for this line. However, the customized furniture line still gains precedence due to its huge profit margin. The company’s founder is quick to note the company’s growth in his review (Rice, 2003). However, the finance department has revealed that the inventory has tied up huge amount of cash. As a result, the inventory holding costs continue to increase. Additionally, the increasing lead times is causing more delays in delivery of both lines of production. As a result, the company management has been forced to re-examine the impact of the standard line furniture on the entire production process. General analysis Qatar has adopted an economic model that has led to the boom especially in the furniture industry. Small-scale production of furniture is not enough to meet its growing demand. As a result, a number of large-scale furniture manufacturing companies have cropped up in all corners of the country. Under this section, an analysis is provided of the strength and weaknesses of Gulf Creative Ideas. Strengths Since its inception, the company sales have rose dramatically. It has identified affluent consumers as its target market. High-end consumers are less price-sensitive and provide unique design specification for their furniture. The company has exploited this niche fully and this as translated to its continued growth in revenue. Weakness The company has failed in inventory management and as a result, its liquidity ratio has plummeted considerably. A company with low liquidity ratio has less capital to invest in other activities. Question 1 Chapter 1 is concerned with the operation management: activities that oversee the production process. Under the organization chart, inventory management is part of these activities in the manufacturing process. Chapter 2 analyzes the need for a mission statement and the operation strategies that follows. Gulf Creative Ideas should focus on the strategies that augment its competitive advantage. With regard to the sixth chapter, quality improvement is a sure way of achieving organization goals. Among the quality improvement processes available to Gulf Creative Ideas is Just-In-Time that ensures there are no excess level inventory. Chapter 13 analyzes the planning processes that aim at minimize the operation cost. Adequate management of the inventory levels is among the approaches afforded in this chapter in cost minimization; costs associated with inventory include storage, insurance, and obsolescence cost. As for the other chapters, there is minimal or no relation to the case study. Question 2 From the finance perspective, it is clear that the growth of the company’s sales does not translated to huge profits. The company embarked on the production of two different products lines: custom-built and standardized furniture. As a result, this has increased the level of inventory. The high level of inventory pertains to both increased level of raw material, and work in progress. The inventory ties up a huge amount of cash (Zipkin, 2000). Profits and cash flow are distinct concepts. The latter is more dynamic and more pragmatic. On the other hand, the profit concept is somewhat shallow and views income and expenses at a narrow dimension. Cash flow is more concerned with the movement of cash in and out of the enterprise. More importantly, it takes into account the time value of money. In order to comprehend fully the differences between the two, a number of factors should be considered. For instance, the change in the inventory, account payable, and, account receivable. Additionally, the depreciation of the firm’s equipment is also a primary cause of the difference between the profit and cash flow. However, depreciation is purely a paper-based expense: no actual cash outflow. In accordance with the accrual accounting method, the cash flow is computed by adding back the depreciation to the net profit (Zipkin, 2000). Question 3 In scheduling the labour hours in the manufacturing process, higher priority was given to the custom-built furniture line. The underlying reason was due to the profitability of the production line. To a certain extent, the decision on the trade-off was called for. The company’spopularity has grown immensely across the gulf region due to its production of customized furniture. The furnitureis produced based on the consumer demand and specification. As a result, the inventory of custom-made furniture is fast moving. Additionally, less cash is tied up on the inventory. Even after the adoption of the new standard line of production, the custom-built furniture accounts for 75% of the company’s cumulative sales. The new line of furniture has greatly slowed the movement of the inventory sinceit is not produced on demand. As a result, this has led to an increase in the inventory holding cost and a lower profit margin. In addition, the consumers of this product line are more sensitive to price changes and impose stricter delivery requirement than the buyers of custom-made furniture (Rice, 2003). Therefore, the company should focus more in the production of customized furniture. Question 4 The underlying problem facing the company is related to the high inventory holding cost. Since the adoption of the standard line of production, the flow of inventory has slowed down considerably. As a result, this has strained the capacity of the entity. In addition, the inventory lead-time has increased significantly for both the two lines of production (Zipkin, 2000). The slow moving inventory ties up valuable capital that would have been reinvested in the business. Question 5 Recommendation Slow moving stock takes up a significant warehouse space. Therefore, the company should come up with a plan of dealing with the inventory. The most popular practice is the slashing of the product prices. However, before doing that, the company should first re-examine its marketing tactics. First, the company should focus on its website. The site should allow an easy access of the company products. Often, huge e-commerce catalogs make it hard for the products to be found using the site basic navigation. The company’s products should be included in the site’s internal search tool. Slow moving items should be featured in the site more frequently. Product imagery is also crucial since it can make a sale. Comparison between images of slow moving item and the popular one should be made. Additionally, description for the slow moving items should focus on the details likely to appeal to the consumers. A good instance is the product color, material, size and customer ratings (Rice, 2003). . Product personalization entails focusing on a particular class of consumers who are likely to buy the items. The marketing tactic encompasses the use of personalized emails or personalizing the company’s website to repeat the customers. In case, the discussed marketing tactics do not affect the movement of the inventory significantly, the business should embark on slashing down the prices (Zipkin, 2000). Waysto prevent slow moving inventory When purchasing the inventory it is important to establish the economic order quantity. The economic order quantity is the optimal quantity that minimizes the company’s total cost associated with purchasing, carrying, and delivering inventory. A number of factors are considered in establishing the economic order quantity. The factors are; demand of the product, holding cost, purchase price, and the reorder level. More importantly, the company should analyze the carrying cost on an annual basis and compare it with the purchase price while taking into account the different reorder level. Often, the carrying cost offset the purchase price. As a result, this implies that it is ideal to order a smaller quantity before the product demand is ascertained. On a general note, slow moving stock is a prime impediment to the company’s profitability objective. Therefore, the company should hire a personnel whose sole obligation is to optimize the inventory management. References Rice, G. (2003). The challenge of creativity and culture: a framework for analysis with application to Arabian Gulf firms. International Business Review, 12(4), 461-477. Zipkin, P. H. (2000). Foundations of inventory management. Read More