The case explains the need for Consolidated Electric to develop an inventory control system. Currently, the company faces issues with their inventory management, such as a purchasing agent conducting periodic checks without considering historical data and demand. Moreover, the absence of a computerized inventory system poses additional challenges for Consolidated. Therefore, in order to address these problems, Consolidated must make certain alterations to their structure and organization.
Consolidated should establish a central warehouse location and small regional supply centers for easier supply management. Des Moines is ideal for the central location as it is in the middle of Iowa and within an hour from all three supply centers. Consolidated should shift away from the earn and turn concept in inventory management and instead evaluate inventory stock daily. A periodic review system should be implemented to analyze the movement of goods from the warehouse.
It is important to adjust the minimum and maximum inventory levels with lead times in order to ensure swift replenishment and prevent stockouts. Additionally, a surcharge should be added for expensive items to cover the cost of maintaining stock. The ABC inventory management method should be implemented for controlling inventory of slow selling items. When a product from the bottom 50 percent of the product lines needs replenishment, its profitability should be evaluated.
After evaluating the product, make a decision whether to continue or discontinue warehousing the item. Write a one-to two-page paper that describes how the system you have designed will help the company meet customer-service and cost goals. Consolidated requires a computer for inventory control and to track inventory histories. Monitoring the history can reveal trends in inventory movement and customer demands at specific locations. This information can aid in making decisions about future stock instead of waiting to earn and turn. Computers can also track current inventory levels using barcode scanners.
Scanning entering and exiting inventory can help maintain current levels and prevent mistakes that may occur with the card system. By locating a central distribution center, Consolidated can improve control over inventory. Having smaller point of operations will decrease the amount of inventory needed at each site. To reduce overall costs, each location will only stock immediate customer needs. Additionally, consolidating all shipments to one location will make it easier to maintain purchasing discounts and save the company money.
To save costs and increase profits, it is more efficient to use a few small vans for delivering to regional locations within an hour rather than ordering extra items just to qualify for a minimum purchase discount. This approach minimizes shipping expenses to smaller locations and leads to long-term savings for the company and its customers. Additionally, if the contractors communicate their specific needs to Consolidated, those items can be directly delivered or picked up at the regional office. Effective communication and dedication to providing prompt and excellent service are essential in reducing costs and enhancing profitability.
Implementing a min-max inventory system with lead times in place will enhance inventory replenishment and prevent stockouts, which ultimately benefits the customer. Employing the ABC system to manage slow-selling stock can assist in cost reduction. For products with a weak sales record but high profitability, the company can apply an inventory charge to account for the warehouse space utilization, thereby reducing overall costs.
Having the product in stock and readily available will enhance customer satisfaction. The current “earn and turn” system fails to meet customer expectations, potentially leading them to explore other suppliers. Consolidated should consider stocking certain slow-selling items that are still desired by customers. Instead of not carrying these items at all, it would be more beneficial for customers if the inventory size of low-selling items is reduced. My hybrid system incorporates various approaches to effectively manage inventory. Being diligent in the storage and ordering processes is essential.
It is crucial to avoid excess inventory by not ordering too much and having a central person or location handling the ordering. Items that are not selling can be sold online or to other distributors. The primary focus of this company is to ensure that the items are readily available for customers. In the Midwest, there are major firms that stock items for contractors. To differentiate from the competition, it is important to have special items in stock that may not sell as quickly as desired by the president. It is imperative not to surrender the competitive advantage in order to compete with Lowes and Home Depot.
