Case Study – Big D Company
1.1 In order to advise the management on the installation of a more formal system to control the flow of materials and goods from supplier through stores and production to dispatch we must first summarize the current problem areas confronted by the Big D.
• Problem areas in Big D Company are presented in the order shown in the paragraph
o On the highly standard material sizes, more than enough for one order might be purchased and in most cases full lengths would be ordered rather than the exact fraction needed.
o Some of the ordered exceeds the immediate requirements resulting in the purchasing of the same material without verifying the available stock.
o Molded plastics were sometimes bought in excess of immediate needs and the quantities shown on the bill of materials were note amended.
o Materials brought in from the supplier were not crossed checked with the Big D records and taken directly to the production or assembly.
o Shop works were not scheduled and machines were idle and the foreman worked on any order.
o No formal purchasing system
o Completed jobs were not recorded and sometimes units were assembled in advance of the completion of the entire lot.
o The sales and production records indicated frequent early deliveries or
o Quite a few times completed orders were kept in storage room … which caused lost orders.
o The superintendent usually allowed himself more time than was necessary for ordering, machining and assembly. Again this caused loss of order.
o The company had not formal inventory control system.
o Not records were kept of raw materials.
o An Informal tabulation of finished goods was used.
o Job were frequently sold even before completion
o A second lots were started before the first was finished,
o No formal production planning and inventory control activity.
• The Proposed for Appropriate Structure for the Purchasing Function
Purchasing department is considered the backbone of any organization. One role of the purchasing department is to procure all necessary materials needed for production or daily operation of the company. For a manufacturing company, this might include raw materials such as iron, steel, aluminum or plastics, but it also might include tools, machinery, delivery trucks or even the office supplies needed for the secretaries and sales team. The purchasing department also makes sure there is always sufficient product on the shelves to keep the customers happy and keep the store well-stocked. It is especially important to keep inventory ordering at a reasonable level; investing large amounts of capital in excess stock could result in storage problems and in a shortage of capital for other expenditures such as advertising or research and development. Purchasing also oversees all of the vendors that supply a company with the items it needs to operate properly.
Couple of conclusions was made after studying the problems noted above. First, it is quite clear that a formal structure must be put in place. Secondly, a formal inventory control system & production planning must be introduced. Having these in place, the company will avoid losing orders and in time will solve all the above problems.
It is proposed here that the purchasing function to be structured in a CENTRALIZED way. Centralized purchasing structures are characterized by all purchases, being managed by a central purchasing group. In this approach, the operating units are consulted but are not fully responsible for their own buying. Centralized purchasing provides the firm with a single, collective sourcing and buying power. This model captures a large part of the potential corporate purchasing synergies, but there is little user control and responsiveness to local needs. The primary advantage of centralized purchasing is to...
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