THE PRIVILEGED FLY
As a Privileged Fly I have been allowed to be on the wall of a corporate boardroom to observe the proceedings during the high-powered discussions. The case study is about a manufacturing and engineering firm that has been doing very well in terms sales but has a serious challenge of escalating freight costs. The case study reveals that the root cause of the problem is insufficient inventories and lack of planning and fragmented purchasing process. The case study will provide a detailed analysis of the basic inventory problems confronting the firm. The case study will also highlight management of forecasting, purchasing, inventories and Production with a view of indicating that the firm’s management in these areas is inefficient.
Furthermore, the case study will look at inventory management, inventory control and whether the Purchasing Manager should build up her inventory. It will reflect the need to hold inventory as well as dangers and consequences for poor inventory control. The case study will reflect on materials management as a concept that is applied nowadays in order to streamline process and ensure system efficiency, its advantages and whether the firm must adopted the materials management approach. Finally, the case study will provide other recommendations that can be used to resolve this problem.
1.WHAT ARE THE BASIC INVENTORY PROBLEMS CONFRONTING THIS FIRM?
In every organization the purchasing department forms an integral part of the success of the department in meeting the sales, production and distribution demand and has a critical role to play in order to ensure that the organization meets and possibly exceed the expectations of the customers. It is therefore imperative for communication to flow between the Purchasing Manager and other Managers around the orders received and the status of the production department with regards to materials/parts required for a particular order.
The basic inventory problems confronting this firm have been identified as follows: -
The lack of communication between the Production Manager and other Managers creates a problem in terms of establishing whether materials/parts are available as well as to enable the Purchasing Manager to plan properly and well in advance to meet the requirements of the Production Manager in terms of materials/parts or spares.
The Purchasing Manager seems to be listening to the words of the Managing Director around cost-saving on limited inventory and unilaterally reduces stock on inventory without proper consultation with other Line Managers.
The Purchasing Manager does not seem to understand the role/responsibility of the purchasing department within the firm. According to Hugo, Badenhorst-Weiss & van Rooyen, (2002) purchasing and supply management is responsible for the continuous supply of all kinds of materials needed by production – in the right quantity, at the right time and at a competitive price. It is therefore clear that the purchasing department is the main player in ensuring customer satisfaction while enhancing the image and reputation of the firm. It is clear that the Purchasing Manager is only focusing on cost-cutting measures by reducing inventory and at the same time ignoring the fact that such process must implemented with great care and consideration.
As much as the firm wants to cut down on inventory it is important that the exercise is not implemented to the detriment of the firm. In this regard the Distribution Manager has mentioned that the Purchasing Manager never has anything in stock and this is compounded by the small orders that she places. Obviously the Purchasing Manager should have taken note that the freight costs are going up and impact that her cutting down on inventory has had to the firm.
Insufficient stock on inventory reflects lack of proper inventory management and also taking into account the manner in which orders/parts/stock are...