Purchasing and Inventory Management Processes at the Lancaster Motor Group - Case Study Example

Purchasing and inventory management processes at the Lancaster Motor Group Name Instructor Course Date Executive summary This report aims to study the effectiveness of the existing purchasing and inventory management processes at the Lancaster Motor Group. The report achieves this by evaluating the process of purchases and inventory management processes and procedures. It analyses the difference in the inventory management processes within the organization because of using different suppliers and manufacturers to deliver the various parts and items to the organization. The report also looks into the weaknesses of the existing purchasing and supplies management practices and processes and how they will be affected by the acquisition. Additionally the report looks into the importance of employing purchasing and inventory management policies and procedures. The report identifies the benefits associated with using the procedures and the reason the processes and procedures are necessary in an organization. The findings of the report reveal that although the organization currently uses purchasing and inventory management policies these policies are not entirely effective and should be restructured to provide results that are more effective. Furthermore, the report proceeds to provide recommendations based on the analyzed position of the current processes in purchasing and inventory management policies adopted. These recommendations aim at restructuring of the existing system through: 1. Reviewing the current process 2. Examining the process 3. Analyzing the process Table of contents 1. Introduction ……………………………………4 2. Aims ………………………………………. 4 3. Scope ………………………………………. 4 4. Analysis …………………………………… 5 5. Weakness …………………………………… 6 6. Changes ……………………………………. 7 7. Benefits ……………………………………… 8 8. Conclusion ………………………………… 9 9. Recommendations………………………… 10 10. Reference list ……………………………… 13 1. Introduction Lancaster Motor Group acquisition of the new dealership implies an increase in the company base and with this increase, the process of purchasing and inventory management also increases. In order to manage its inventory and purchasing procedures effectively, it becomes critical for the company to assess its current position concerning the process of purchasing sand managing inventory. The development of an effective purchasing and inventory management procedure requires an analysis into the existing structure in order to establish the required weaknesses in the process and make appropriate changes. As such, this report tries to look into these issues and develop recommendations based on the examination of the existing situation. 2. Aims This report aims at assessing the efficiency of purchase and procurement processes and procedures within Lancaster Motor Group. The report focuses on these processes in order to determine the validity and cost effectiveness of employing effective procedures and processes to reduce costs. . 3. Scope The report evaluates the purchasing and inventory management process used by Lancaster Motor Group in order to decide the effectiveness of the processes and make recommendations where necessary. 4. Analysis The purchase and inventory management procedure and policies might differ due to several factors. The process of purchasing depends on the ordering procedure adopted by the supplier or manufacturer. Some suppliers may require the orders to be placed and allow time for delivery to take place while some provide immediate delivery of orders. This affects the purchasing process, as the time of making a purchase should be structured to include this fact. The quantity purchased, and the type of product to be purchased also determines the process involved in purchasing. Where the product purchased is technical or requires more data to be included in the purchase orders then the procedures and processes developed vary considerably (Yang and Lo 2011). The procedure for the purchase of lubricants and that of purchasing a car or cars differ. This is so because in the purchase of the lubricants a few details are required whereas in purchasing a car more detail such as the make, model, engine number and the color of the car may be necessary. Additionally the purchase policies and procedures may differ due to the procedure and requirements of the suppliers or manufacturers. Some suppliers or manufacturers may have specified procedure for purchases while others may not employ such procedures. Even where purchase procedures are available, the procedures also vary according to the supplier or manufacturer. According to Yang and Lo, issues such as guarantees may also affect the purchase procedures and policies where preference may develop with respect to suppliers and manufacturers who provide guarantees (2011). On the other hand, the inventory procedures and policies also vary according to suppliers and manufactures because of the different products they supply. Some items require large storage spaces while others may require minimal space for storage. This implies that the inventory control measures considerably vary since less of the items requiring large storage spaces can be kept in stock compared to the items requiring less space. This, therefore, implies that the frequency of ordering the goods requiring more storage space should be more frequent than those requiring less space. The quantity ordered of an item depends on the space available to store it within the company. Where the company has little space to store these equipment’s then the quantity purchased must be reduced. Another factor that varies the procedures and processes are the finances available for the item in stock. The payment policy adopted by the supplier or manufacturer determines the procedures and processes of inventory management (Ashisha Bhatnagar, n.d.). Where a supplier or manufacturer gives credit for items then the inventory process and procedures will vary from suppliers and manufacturers who require payment before or at delivery. The quantity of the items also varies the procedures and processes of inventory management as items in large quantities require different inventory management procedures and processes in contrast to items, which are few in quantity (Cheung, Wang, and Kwok 2005). The inventory management processes and procedure for lubricants and cars will vary in respect to the quantities if the items in stock. 5. Weaknesses The main weakness of the current purchasing and inventory management practices by the company is its reliance on historical demand data to develop procedures and processes. The use of these data implies that the processes and procedures for purchasing and supplies are determined by past practices. This, therefore, implies that the procedures and practices are not reflective of the current situation and as such is not effective. Historical data obtained involve data on matters that were present at the time of the process and may have changed over time. Effective purchase and inventory management procedures should reflect on the current situation. Using historical data does not involve the incorporation of changes into the processes and procedures. This implies that the processes and procedures for purchases and inventory management need to change over time, but with the use of historical data, this does not happen. According to Vinod, the use of historical data does not improve the overall position of the business as the data lead to results that are similar throughout the years (n.d.). Although this ensures that the business has consistently returned throughout the years, it becomes necessary for any business to not only retain its position but also improve it. Using the historical data for these processes denies the company an opportunity to explore and employ other procedures. 6. Changes The new acquisition will try to enhance these processes and procedures by introducing a more comprehensive process that reflects on the current issues involved. The acquisition will try to introduce concepts that are not included in the historical data of the company. By bringing in new techniques, the use of historical data, to develop an inventory and purchase procedure would evolve significantly. Since the historical procedure follows a specified style, the acquisition would vary the process immensely. The acquisition means that the procedures and processes involved are bound to change, as the individuals coming in are likely to adopt different procedures for purchasing and inventory management. The purchase and inventory management procedures can help reduce investment and space requirements significantly. Where the right procedures are used, the inventory does not have to be stored for longer durations in the business and are sold as they are received. Where the purchase procedures are done more frequently it implies that the goods are stored for a short time, and only those goods that are required are purchased (Robert and Larry 2008). 7. Benefits Using purchase and inventory management procedures that require minimal storage space and, therefore, ensures that the items are purchased with regard to the immediate demand and that the inventory procedures and processes are followed for a short period. An effective supply chain management concept should, therefore, include all the parties that are the customers as well as suppliers and manufacturers as well as other intermediate parties. Therefore, an effective supply chain process should work to ensure the supply of necessary items as per the customer's requirements or the season. Providing a process that ensures the items are stored for a shorter time key in reducing the space required and the finances used. Preference should also be given to suppliers who are in a position to make frequent supplies or who give the goods on credit. When a supplier delivers the goods and allows time for the company time to pay for such items it gives the company an opportunity to reduce on finances required for purchases. This is so because another company only pays the supplier after an agreed period in which time the company would have sold the items to the customers and facilitates the purchases after the sales are done. The benefits associated with supply chain management include identification of those processes that increases the cost of three products without increasing the worth of the final product. Processes such as these are wasteful are non-value adding, therefore, should be eliminated. Rose provides that employing constant supply chain processes reduces these incidences and, therefore, saving on cost (2008). Good supply chain practices also increase efficiency. Supply chain management policies looks at eliminating resource wastage, which is the main source of high production costs. This situation often results from inappropriate planning and the use of incorrect supply chain and processes. Employing effective supply chain management processes des ensures that the company achieves efficiency of its operations because only the activities that add value to the company are encouraged. Effective supply chain policies ensure that the company operates smoothly and within its financial capacities. Employing supply chain management processes also ensure that the company improves productivity since these processes help to build strong relationships with suppliers and, therefore, it supports the fulfillment of supply orders on time. Where a company strives to be responsive as well as keeping time then such a company is bound to attract more customers. This can be achieved with supply chain management procedures. Supply chain management policies also increase the company profits by ensuring that all the costs associated with the goods remain as low as possible. Applying supply management policies reduces the costs associated with the goods and eliminates wasteful processes. Supply chain management processes also reduce delays associated with delivery of goods. Supply chain management policies reduce late shipments, production holdups, and logistical errors on channels of distribution, which are issues that negatively influence the businesses' abilities to satisfy the demands of the customers. With the use of supply chain policies, all these processes are coordinated seamlessly and are executed from start to completion thus ensuring higher levels of timely delivery (Dewan 1996). 8. Conclusion Although there exists a functional purchasing and inventory management policy at Lancaster Motor Group, the policy in place is not reflective of the current business environment since it is based on historical data. The use of historical data for these purposes implies that the productivity of the organization is restricted only to this data. The weaknesses presented on the use of the system together with the changes expected after the acquisition implies the need for a better policy. The development of the policy should reflect on the current position of the company as well as aim to reduce finances and spaced used by inventory management and procurement. In order to have an effective purchasing and inventory management policy, it is essential for the company to embrace a new approach to the process and adopt new techniques. 9. Recommendations Rosenberg and David provide that in order to have an, effective purchasing and stock management procedure it becomes imperative to change the existing system (1985). These changes to the current system should reflect on the desired expectations of the company while putting into consideration the finances and peace available for such activities. The desired reforms, therefore, should look at these two issues and at the same time maintain productivity productive. The recommended procedures and processed for the purchase and inventory control must consider the reorder level of items. Where items are actually ordered regularly the procedures followed should ensure that when the order is made the quantity ordered should be sufficient. The recommendations involve restructuring the policies and processes involved by: 1) Conducting reviews of the processes, operations and functions, which including sourcing and inventory management procedures, practices, and, policies bearing in mind each of the functions and activities concerned with the determination of requirements, maintenance, procurement, managing, and distributing of inventories - identifying uniqueness of the different organizational structures and responsibilities 2) Examination of the procurement, inventory management, as well as the service performance assessment used by the organization in the movement of goods throughout the organization founded on seasonality, markets, and the customer demands. 3) Analysis and evaluation of purchasing and inventory management details and performance, comprising determining performance levels, monitoring inventory levels and the use of exception reporting. It is also beneficial to examine and analyze buying triggering and development of performance reports. These recommendations focus on putting in place procedures, policies, and organizational funds to improve management of inventory and develop supplier partner shipping and tradeoffs of inventory and service to customers. These recommendations aim to blend the work with of the organization with that suppliers and manufacturers in order to achieve management's objectives in a cost effective and timely manner (Rosenberg and David 1985). Additionally the recommendations aim at improving the practices, procedures, policies and, for the procurement, purchasing, and management of inventories. In addition, it included the reduction of capital investment in product inventories, and the provision of better tools for analyzing and management of inventory. The improvement of communications and connections between sales, operations, and sourcing responsibilities is also attained. Additionally increasing product inventory turns and product availability to service customers as well as instantly reducing the quantity of selected Inventories results. Improvement of the reports and controls to manage and monitor inventory must be considered. It is also recommended to develop an organizational structure with roles and responsibilities for inventory purchasing and management. Improvement of the management information in terms of data availability and timing must be considered in achieving an effective purchasing and inventory management process. It is also beneficial to develop opportunities for decreasing operating costs connected to inventories and associated logistics functions and activities. Reference list Ashisha Bhatnagar,n.d. Textbook of Supply Chain Management. Sanbun Publishers. Cheung C. F., Wang W. M., and Kwok S. K., 2005. Knowledge-based inventory management in production logistics: A multi-agent approach. Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture, vol. 219, 3: pp. 299-307. Dewan, Sudarshan, 1996. Purchasing & Materials Management. Discovery Publishing House Robert B. Handfield, Larry C. Giunipero, 2008. Purchasing and supply chain management. Cengage Learning. Rose Hightower, 2008. Internal Controls Policies and Procedures. John Wiley & Sons. Rosenberg L. J., and David P. Campbell, 1985. Just-In-Time Inventory Control: A Subset of Channel Management, Journal of the Academy of Marketing Science, vol. 13, 3: pp. 124-133. Vinod V. Sople n.d. Supply Chain Management: Text and Cases. Pearson Education India. Yang, M-F and Lo M-C, 2011. Considering single-vendor and multiple-buyers integrated supply chain inventory model with lead time reduction. Proceedings of the Institution of Mechanical Engineers, Part B: Journal of Engineering Manufacture, vol. 225, 5: pp. 747-759. Read More