Summary
Outdoor Power Center is a growing business in Brisbane with three major stores. It enjoys the
competitive advantage in the market on the basis of its brand loyalty, potential customers, quality
and other effective marketing mix. But there are some internal problems in its operations that
shows low productivity and performance, mainly due to inefficient inventory management
system.
In this report, the problems of poor inventory system are described along with their effects on
overall performance of Outdoor Power Center and on brand uniqueness. There are some
inventory management policies and procedures, which reduce the cost and error of inventory
control systems. The solutions of these problems along with some recommendations is also given
in this report.
Introduction
Outdoor Power Center, a well-established and growing business, works in Brisbane with network
of three stores (Mt Gravatt center, Strathpine center & Ipswich center) at different locations. All
centers are same but there is difference in products according to the local customers such as the
Ipswich’s center in residential area offers the variety of ride-on mowers, garden tools, domestic
acreages and small farmhouses which is most demanded by customers of larger properties.
All of these centers works as an independent business. Outdoor Power Center enjoys a good
reputation and competitive advantage in the market with diversified products of best quality,
educated & trained staff and most important, satisfied customers. But there are some issues and
problems in its Operating activities, that are described in below paragraphs:
Problem
The Outdoor Power Center is known for its skilled employees, best quality products and
excellent services i.e. delivery and other after sales services but Outdoor Center should work on
following issues to work effectively and efficiently. That are:
1. Decentralized system based on utmost good faith and mutual cooperation.
2. Fairly loose Approach i.e. lack of defined or standardize rules, policies and procedures
3. The process of managing and controlling the purchase and inventory is not effective. As
odd practices relating to inventory management system is still followed in Outdoor Power
Center.
4. There is lack of Optimum Utilization of sources as Brisbane Outdoor do a large amount
of investment in stock arrangement and management.
5. Each store of outdoor Power Center works autonomously in purchasing and controlling
the inventory, sale and distribution of products. There is no as such integrated approach
as the operations or activities of each store are unconnected and different with each other.
Moreover, the inventory managers of each store use their own handling and maintenance
method of inventory. Moreover, they arrange their requirement of inventory from their
own sources
6. Product brand differs from store to store, this thing can attack the brand loyalty and
reputation of Outdoor Power center. As there is a fixed standard of brand products, that
should be followed by every store to win the confidence and trust of customers.
Discussion
The details of above mentioned problems and issues faced in Outdoor Power Centers is as
follows:
Current purchasing and inventory management processes
The Outdoor Power Center works on the decentralized approach means every store holds and
control its operations by itself. There is no centralized office or management that plan, design,
control, schedule and implement the overall operations of all stores. Every store arranges the
material by its own sourcing. Moreover, the transfer and movement of material within the stores
doesn’t require particular prerequisites or accountability means there is an integrated approach.
There is no as such rules or polices and standards set to control the overall operations of stores as
it is based on confidence, utmost good faith and mutual cooperation. Every store manufacture
and sale the product according to customer’s trend in that specific market i.e. no scheduling
related to distribution of products. This inventory management system has following pros and
cons:
Advantages of Current Inventory management system:
Stock Rotation
Specific needs of potential customers can be fulfilled
Immediate availability of inventory in emergencies
Low internal transport costs
Material handling cost saving
Minimize the chance of risk and incremental cost
Controlling and accomplishing in each store can be done easily
Improve diversity in products and services
Disadvantages of inventory Management system:
The disadvantages of this inventory method can be described in following points:
Loss of Cost Effectiveness
Poor Customer Service
Poor Planning
Complicated infrastructure
Duplications of inventory/equipment
More investments
Extra or Spare space is required for each store and department
Promote healthy competition among stores
Attack the brand loyalty and uniqueness
Diseconomies of scale
Solution & Action Plan
In Outdoor Power Center, there are following types of inventory used:
1. Raw Material
2. BOP i.e. Bought-out-parts
3. WIP i.e. Work in process
4. Finished goods
5. MRO supplies
There are some problems in controlling and managing these inventory which affects the efficient
operations (as discussed above), which could be solved by efficient and effective inventory
management, the below figure is an illustration of whole inventory management system:
Inventory management circle begins and finish with supply chain management as most of the
opportunities to perform the operating activities effectively begins with limiting the order to
receipt time without employing more investment in arranging or managing the inventory. The
other stages of inventory management circle are based on some inventory policies and inventory
management concepts, which are also important in overall effective inventory management
system.
Supply-chain Management
The term “Supply chain” refers to the sequence of activities and facilities of a company which
involved in manufacturing and distributing the products/ service to its end users. The sequence
starts from the first supplier of raw materials to its final destination (Customer) i.e. commercial
and retail consumers of Brisbane Outdoor Power center. Facilities of Outdoor Power Center
comprises offices, factories, processing centers, warehouses, distribution centers, retail outlets.
The activities of Outdoor Power Center involve estimating, purchasing, inventory management,
production, quality assurance, scheduling, information management, sale, distribution and
customer service. Donald Saxon, owner of Outdoor Power Center, should adopt the effective
supply chain management system to plan, design, control and manage each activities and
facilities of all its stores. As described above, the operation and performance of Outdoor center is
totally based on fairly loose approach, it is not a good practice as it results in increase in cost,
inefficient maintenance and control of assets and inventory and low productivity. The bwlow
figure tells the effectiveness of whole supply chain management:
Inventory Control
The most important inventory control practices, which Outdoor Power Center should follow:
Equipment and Inventory Accountability
All the inventory and equipment used in each stores should be recorded accurately by their managers.
So that, there should be complete record of quantity of equipment available in every store. By
equipment accountability the shortage and own sourcing issues can be resolved. By keeping a record of
equipment, the optimum productivity and efficient performance can be achieved. As the Strathpine
center & Ipswich center are purchased on going concern business so the equipment and
inventory should be recorded when the purchase is done rather than when the amount is paid
against such purchases.
Equipment/Property Transfers
As it is already discussed that each store works autonomously and in case of shortage of any
equipment or product, it takes from other store. And there is not as such integrated approach in
property or equipment transfer from one store to other store which means there is lack of proper
and accuracy of accountability in Outdoor Power Center. According to operation management
principles, a request should be made to accounting by the owner or CEO of an organization,
before moving or transferring any equipment (tagged or fixed items) or inventory (either the
quantity is small or large) from its store, warehouse or its own outlets. Moreover, the transfer or
movement should be scheduled in advance for effective maintainece of inventory and equipment.
Inventory/ Equipment Retirement
The retirement or disposal of inventory or equipment should be recorded properly to the
Purchase department of Outdoor Power Center. The retirement might be theft, trade-in, sale, or
irreparable damage to inventory or equipment which reduce its value-added feature. The
information of retirement of equipment should also be given to Maintenance department to
measure the salvage capacity of an inventory/equipment.
Cycle Counting
Cycle costing is a key method to maintain the inventory accurately, which highlights the
accomplishment of each store current procedures and keep accountability of possible error
causes. This method requires some limitations, for Outdoor Power Center: the perpetual
inventory count maintenance or 100% counts i.e. full-building counts could be applied.
Process Auditing
Estimation and measurement of proactive error source require a proper process audit. The
process audit should be done timely and on early stages, it could be done at each store even at
each transactional step of each store in case of Outdoor Power Center (From sipping to receiving
the inventory purchase)
Demand Forecasting
Analyzing the demand forecasting is the best method to overcome all costs (Shortage cost, Risk
cost, Maintenance & Repair cost, over supply cost, safety cost, incremental cost etc.) related to
inventory. The demand forecasting should be done by manager for every type of inventory used.
For this purpose, unique max-min management should be developed keeping in mind the time
and usage of each inventory as it tells the quantity and time at which that inventory is required.
Recommendation
As per above solutions of poor inventory management system, the following action plan is
developed that is:
There are some further recommendations, the Outdoor Power Center should focus:
It is recommended that Brisbane Outdoor Power should adopt the automated inventory
management system to track the inventory of each store and also highlights which store and
where (at which transactional step) have done wrong. There should be inventory consultant to
review the stock and inventories used periodically, control and improve the storage of inventory
and advice you regarding purchase and maintenance of inventory.
There should be some strict polices, standards and procedure that should be followed by
everybody as doing everything on trust and belief is not a good practice
There should be check & balance on every transaction of each store.
Centralized approach should be adopted so that all internal and external factors should be
better assess and solve.
Specialization and scheduling should be done regarding production and sale of products among
stores and within the stores (department wise).
Conclusion
Brisbane Outdoor Power Center is considered as best company in its industry due to its product
quality, skilled staff and after sales services. It targeted the potential customers of Mt Gravatt,
Strathpine & Ipswich area which involves both commercial and consumers. The Pareto analysis
shows some error or flaws in its inventory management system that depicts the inefficiency in
productivity and performance. By implementing some inventory management policies and
standards like supply chain management, inventory accountability, it can easily enjoy more
economies in scale. In fact, by improving the inventory management system, it can easily expand
its business and target the more commercial