Design an inventory control system for Consolidated Electric based on the case. Consolidated has a few problems with their inventory control. They have a purchasing agent doing periodic checks of their inventory without reviewing their history and the demand. The lack of a computer inventory system is another problem that Consolidated must address. To design a system for consolidated the company needs to make some changes to its structure and organization.
Consolidated needs to have a central warehouse location with small regional supply centers because it would be easier to supply one warehouse than four. Des Moines needs to be the central location because it is in the middle of Iowa and within an hour of all three supply centers. Consolidated should move away from earn and turn concept when dealing with inventory management. Inventory stock needs to be evaluated on a daily basis with a periodic review system to examine the movement of goods from the warehouse.
They should also have a min max inventory level adjusted with lead times so replenishment can be swift and stock outs can be avoided. The more expensive the item a surcharge should be added for maintaining a stock of the item. The ABC inventory management method should be used for inventory control on the slow selling items. When one of the items in the bottom 50 percent of the product lines is up for replenishment it should be evaluated for profitability.
After evaluating the product make a decision to continue or discontinue warehousing the item. . Write a one-to two-page paper describing how the system you have designed will help the company meet customer-service and cost objectives. Consolidated must have a computer for inventory control and to track inventory histories. Monitoring history can show trends in the movement of inventory. It can also show the needs of customers and at what locations have the most demand. This can help in making decisions on future stock instead of earn and turn. Computers can also track the actual inventory levels with the use of barcode scanners.
Scanning entering and exiting inventory can current levels and avoids mistakes that can happen by using the card system. Locating a central distribution center will increase the control over inventory for Consolidated. Having small point of operations will reduce the amount of inventory that will be maintained at the sites. Each location will have different needs and only stocking the immediate customer needs at each location will reduce overall costs. The purchasing discount will be easier to maintain if all shipments come to one location which will also save the company money.
Having a couple small vans deliver to regional locations within an hour is less costly than ordering extra just to meet the minimum purchase discount. The cost of shipping to small locations will be minimal and will save the company and customers money in the long term. If the contractors know of items that they will need for a job they can inform Consolidated and the special items can be delivered to the job site or picked up at the regional office. Communication is key and willing to provide the best service in a timely manner will reduce cost and increase profit.
Having a min max inventory system with lead times built into the system will increase the replenishment of inventory and avoid being out of stock. This is great for the customer. Using the ABC system for controlling the slow selling stock will help in reducing costs. If a product has a poor selling history but is very profitable when it sells the company should put an inventory charge on the item. This reduces the overall cost of having the item in stock and the charge is for the use of the space in the warehouse.
Having the product available for the customer will increase their satisfaction. The “earn and turn” system does not meet the customers’ expectations. If a product is not available then the contractor will go to some other supplier. Consolidated should have some items that may be slow selling but are still desired by the customers. Reducing the inventory size of the low selling items would be better for the customer instead of not carrying the item. My system is a hybrid of multiple ways to address inventory. Being vigilant in the storing and ordering of inventory is a must.
Don’t order too much and have a central person or location do the ordering is essential in avoiding excess inventory. Items that aren’t moving can be sold in online and to other distributors. Having the items available for the customers is the most important job for this company. Being in the Midwest there are large firms that carry items for contractors. Having special items in stock that may not sell as fast as the president wants is a way to distinguish them from the competition. Never give up the competitive advantage to compete with Lowes and Home Depot.