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Purchasing and Inventory Management is the basis of efficiency in a firm's operations. Thus, most firms define strategies to ensure effective strategies are put in place to manage their purchase needs and maintain required inventory levels at all times. There are a number of strategies from which businesses can choose based on their model of operation. This report presents a case study of a retail company, Brisbane Outdoor, which runs three retail outlets. As the company is at the point of major overhaul in its systems and operations, the new company CEO must assess the current status quo in order to have a clear way forward out of what looks like a mess in its current single node or channel purchasing and inventory management processes to a robust multi-echelon supply-chain inventory management.
The report draws attention to the fact that while the current single node purchasing and inventory management may present some benefits for Brisbane Outdoor, there are real consequences of this approach, especially with increasing complexity of operations of the firm. As such, Ms Green - the new CEO - is bound to take appropriate measures to mitigate against these risks by a way of consolidating the firm's inventory management.
The report recommends an approach that will see the adoption of modern supply-chain and inventory management softwares to optimize company operations. These should be done with regard to the increase in complexity of the organization as it moves towards a centralized operations management.
While Supply-Chain and Inventory Management is an important process that determines the level of efficiency of a firm's operations, it does take research and critical analysis to adopt an approach that meets operational needs. This is especially true considering that each firm is unique even when it operates in the same industry as another. This uniqueness is attributed to a firm's internal operations which reflects its vision, mission, values and most importantly, its goals and objectives (Muvkstadt, 2010, p. 23; Plenert, 2014, p. 59). This also leads to a conclusion that there can never be a one-size-fits-all approach to supply-chain and inventory management. In this report, Brisbane Outdoor faces this reality at a time when the company must harmonize its operations through consolidation of its activities at its three different retail outlets. However, there are certain issues that may not change in this overhaul if the company is to maintain its firm grasp of the local market. The most important of these is the product and service differentiation at each retail shop. These have been tailored toward target market needs and has far-reaching consequences should they be impacted in the process of consolidating the firm's operations(Wang, 2011. p. 166). This report begins by unpacking the single node or channel purchasing and inventory management technique currently in use at the company's retail outlets followed by evaluation of benefits and drawbacks of the technique in a cost-benefit analysis. The report then embarks on evaluating some of the available alternative techniques that would ensure efficiency and reduced investment without compromising stock levels. This discussion is then closed with recommendation on best inventory management strategy augmented with an action plan.
Overview
The purchasing and inventory management at Brisbane Outdoor takes the form of a decentralized approach. Each of the retail outlets manages its inventory independent of the other two. These formally into the single node or channel purchasing and inventory management process where an organization decentralizes its operations and let its outlets emerge as quasi-independent channels. In the current business models, this would be part of the multi-echelon inventory optimization curve at its most basic level. Each channel has its own inventories resulting in multiple inventories for a single business.
Brisbane Outdoor is implementing purchasing and inventory management at the simplest level along the multi-echelon inventory optimization (MEIO) curve. In this simplest and most basic level, the firm's focus on inventory and supply chain management is decentralized, with each channel or node managing its inventory on its own (Dhoka, 2013, p. 38-41). This has seen each of the branches carry out its order placement, sales and overall supply chains independently. While the firms may sometimes cooperate especially in cases of stock shortages in one of the branches, this does not impact the fact each still maintains its own inventory, with possible balancing ensured by branch that gets assisted in managing its stock levels.
Comparative Advantages and Disadvantages of Single Node Inventory Management
Benefits
Brisbane Outdoor may realize some benefits by decentralizing its inventory and supply chain management. By allowing the branches to operate autonomously as independent retail businesses, the firm enhances a high level of flexibility for the quasi-independent branches. This level of flexibility comes with reduced level of consultation and the freedom to determine what to stock or what not to based on demand trend in a particular market. This also reiterates the theoretical underpinnings of urgency theory where to ensure optimized processes, flexibility has to be one major factor to be considered. Apart from high level of flexibility, there is also the other aspect of urgency theory -speed. The speed with which inventory is acquired and orders are cleared is pretty first in the single node inventory management strategy (Darwish & Goyal, 2011, p. 313). Thus, from speed and flexibility perspective, it would be plausible to consider adopting this decentralized kind of inventory control management.
Now, the inventory control strategy discussed in the foregoing is effective as long as we are interested in immediate improvement in sales volume. While the single node is effective in optimization of inventory, it applies mostly to start-up businesses (Russell, 2013, par. 3). However, for a mature business such as Brisbane Outdoor with large customer base and public visibility, there is no doubt the resulting supply chain network is quite complex and this renders the single node inventory management approach ineffective. In short, single node approach cannot offer the greater benefit of optimizing inventory in a supply chain network(Müller, 2011, p. 63). With multiple tiers or nodes within the supply chain, there is likelihood of holding more inventories and this may jeopardize cost effectiveness and overall service level optimization for the entire firm.
Based in the foregoing, it is quite clear that the drawbacks of single node approach to inventory management weigh heavily against Brisbane Outdoor and is likely to result in double buffering effect for the firm. As a result, the service level is compromised and cost of managing the inventories will be cumulatively high. This may prove much unmanageable in the long run (Shin, 2015, p. 154). But as should be the case, inventory management system should be sustainable in the long-term and if that cannot be the case, then even the immediate benefits accruing from a single node approach may end being unnoticed due to high cumulative management costs and dropping service levels due to lack of optimization of supply chains.
Brisbane Outdoor can mitigate against the risks underlying its current approach to supply-chain and inventory management through taking a more robust approach that optimizes its inventory mix. Actually, the aim of optimizing inventory is not all about reducing inventory levels; rather it is to ensure that the best inventory is reached to realize the level of service promised to customers. Thus, Brisbane Outdoor should focus on maintaining an inventory level that will neither be too costly in the long run nor compromise service levels to its highly esteemed customers. The benefits that accrued to the company in the old model of inventory management were merely short-term, and may not be the same in the near future because of the high cumulative costs associated with managing many independent inventories (Singh, 2015, p. 41).
In the new model, the target is to have in place a centralized inventory management that trickles down to each level of retail management (Rouse, 2016, par. 2-3). In short, it would be advisable for the management to consider a multi-channel inventory management approach that is built over multi-echelon inventory optimization (MEIO) model. This model of inventory control follows a curve that begins from the simplest level of single nodes into a more complex maturity level characterized by a statistical safety stock system, into the peak of the hierarchy where more advanced considerations including supply-demand curves and time-phasing of the safety stock are made.
At its most basic level, MEIO ensures that the science of inventory with focus on a single item at a particular location where stock calculations are done in spreadsheets or modelling in an ERP system. The basis of doing this is determine an inventory for a given location that will meet demand at that point of sale, cover lead times and eventually ordering frequency. This will also depend on the level of service that has been considered. Brisbane Outdoor must do this with its outlets in a bid to meet its optimization needs. At this point, there is still little to do with optimization of inventory because we are still stuck at the single node level.
The next level of maturity comes in the form of setting a systematic statistical safety stock for all the times identify for each of the three branches. This is part of a tactical planning process that will take the company's inventory management to the next level. At this level, uncertainty issues, time-phasing for the safety stock and demand and supply considerations (Huiskonen, 2012, p. 513-514) are broken down and analyzed conclusively. With this approach, the company should find it easy to propagate uncertainty and up and down the supply chain while at the same time taking into account the independence of each of branch in terms of their operations (Axsäter, 2011, p. 72-80). It should be clear that this approach of inventory management provide insights that may not be achieved from single tier solutions especially with reference to target at maximizing strategic improvement for an overall good of the firm unlike in the single node approach (Damron, Rupp, & Smith, 2016, p. 354).
Brisbane Outdoor should consider investing in multi-channel inventory management software. Actually, the best way to achieve results fast and in the simplest way possible with a multi-echelon inventory optimization model is to embrace use of technology. The firm can conduct survey and market research for available software solutions that meets its unique needs as a retail business that is operating multiple branches. A good example of software of this nature would be M. O. M(Multi-Channel Order Manager) software that not only helps in optimizing inventory for the multi-channel business, but as well addresses the underlying needs to ensure that product mix form part of the inventory level decisions(Dydacomp.com, 2016, par. 2-3). Moreover, this software also enables for point-of-sale inventory management that will add to the important metrics that should inform supply chain decisions.
Implementing the strategy requires an action plan that should be beginning with undertakings to acquire IT experts and equipment. While cloud solutions would be a plausible and much cheaper option, for this pilot trial, it is recommended that Brisbane Outdoor must have its in-house IT department fully equipped to meet the needs of the new model of inventory management among other managerial issues. Once these resources have been assembled and in place, then an action plan based on the provisions of Sales, Inventory, and Operations Planning (SIOP) is undertaking as follows:
Collect sales and market input using electronic processes which can filter out for biases.
Develop a demand plan based on the results of the above procedure.
Refine the demand forecast abovementioned to match actual needs and discard excesses while allowing some margin of error.
Shape the demand pattern through an analysis of the demand and supply trend using "what-if" scenario
Plan and Analyze inventory scenario with emphasis on the level of inventory to meet market demand and also covering buffering needs.
Measure the plan and make the metrics available to all parties concerned(CSCO Insights, 2011, p. 4).
Needless to say, the last bit of this action plan should be execution of the strategy and measurement of results overtime. With a good team and change management approaches considered, it is no doubt that this is the plan to get Brisbane Outdoor over the mess. The shortcomings of the single node model of inventory management that had been associated with high costs of maintenance and low levels of service are overcome in this new model. Incorporation of technology leverages the kind of information and inventory metrics that are much needed for effective inventory management.
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