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Inventory Control Essay

Read the case study below “Harvey Industries”. Provide reasoning for the current financial distress of the company and make recommendations for improvements to the new company president. Include at least one specific recommendation for both Supply Chain Management (chapter 15) and Inventory Management (chapter 13), as well as any other recommendations you deem necessary from your reading. Provide your recommendations in a 2-4 page APA style paper.

Harvey Industries
Background

Harvey Industries, a Wisconsin company, specializes in the assembly of high-pressure washer systems and in the sale of repair parts for these systems. The products range from small portable high-pressure washers to large industrial installations for snow removal from vehicles stored outdoors during the winter months. Typical uses for high-pressure water cleaning include:

AutomobilesAirplanes
Building maintenanceBarns
EnginesIce cream plants
Lift trucksMachinery
Swimming pools

Industrial customers include General Motors, Ford, Chrysler, Delta Airlines, United Parcel Service, and Shell Oil Company. Although the industrial applications are a significant part of its sale, Harvey Industries is primarily an assembler of equipment for coin operated self-service car wash systems. The typical car wash is of concrete block construction with an equipment room in the center, flanked on either side by a number of bays. The cars are driven into the bays where the owner can wash and wax the car, utilizing high-pressure hot water and liquid wax. A dollar bill changer is available to provide change for the use of the equipment and the purchase of various products from dispensers.

The products include towels, tire cleaner, and upholstery cleaner. In recent years Harvey Industries has been in financial difficulty. The company has lost money for three of the last four years, with the last year’s loss being $17,174 on sales of $1,238,674. Inventory levels have been steadily increasing to their present levels of $124,324. The company employs 23 people with the management team consisting of the following key employees: president, sales manager, manufacturing manager, controller, and purchasing manager. The abbreviated organization chart reflects the reporting relationship of the key employees and the three individuals who report directly to the manufacturing manager.

Current Inventory Control System

The current inventory control “system” consists of orders for stock replenishment being made by the stockroom foreman, the purchasing manager, or the manufacturing manager whenever one of them notices that the inventory is low. An order for replenishment of inventory is also placed whenever someone (either a customer or an employee in the assembly area) wants an item and it is not in stock. Some inventory is needed for the assembly of the high-pressure equipment for the car wash and industrial applications. There are current and accurate bills of material for these assemblies. The material needs to support the assembly schedule are generally known well in advance of the build schedule. The majority of inventory transactions are for repair parts and for supplies used by the car washes, such as paper towels, detergent, and wax concentrate. Because of the constant and rugged use of the car wash equipment, there is a steady demand for the various repair parts.

The stockroom is well organized, with parts stored in locations according to each vendor. The number of vendors is relatively limited, with each vendor generally supplying many different parts. For example, the repair parts from Allen Bradley, a manufacturer of electrical motors, are stocked in the same location. These repair parts will be used to provide service for the many electrical motors that are part of the high-pressure pump and motor assembly used by all of the car washes. Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom- a stockroom foreman who reports to the manufacturing manager and an assistant to the foreman. One of these two employees will handle customer orders. Many customers stop by and order the parts and supplies they need. Telephone orders are also received and are shipped by United Parcel Service the same day. The assembly area has some inventory stored on the shop floor.

This inventory consists of low-value items that are used every day, such as nuts, bolts, screws, and washers. These purchased items do not amount to very much dollar volume throughout the year. Unfortunately, oftentimes the assembly area is out of one of these basic items and this causes a significant amount of downtime for the assembly lines. Paperwork is kept to a minimum. A sales slip listing the part numbers and quantities sold to a customer is generally made out for each sale. If the assembly department needs items that are not stocked on the assembly floor, someone from that department will enter the stockroom and withdraw the necessary material.

There is no paperwork made out for the items needed on the assembly floor. There were 973 different part numbers purchased for stock last year and those purchases amounted to $314,673. An analysis of inventory records shows that $220,684 was spent on just 179 of the part numbers. Fortunately for Harvey Industries, most of the items they purchase are stocked by either the manufacturer or by a wholesaler. When it is discovered that the company is out of stock on an item, it generally takes only two or three days to replenish the stock. Due to the company’s recent losses, its auditing firm became concerned about the company’s ability to continue in business. Recently the company sold off excess vacant land adjoining its manufacturing facility to generate cash to meet its financial obligations.

New President

Because of the recent death of the owner, the trust department of a Milwaukee Bank (as trustee for the estate) has taken over the company’s affairs and has appointed a new company president. The new president has identified many problem areas- one of which is improper inventory control. He has retained you as a consultant to make specific recommendations concerning a revised inventory control system. What are your recommendations and rationale? Harvey Industries is a Wisconsin company that specializes in the assembly of high-pressure washer systems and in the sale of repair parts for these systems. With the recent death of the owner, the trust department of a Milwaukee Bank, the trusty for the estate, has taken over the company’s affairs and has appointed a new company president who has identified many problem areas such as improper inventory control and has asked me as a consultant to make specific recommendations concerning a revised inventory control system.

After reviewing the company’s current inventory control I would recommend that it would be very important for them to establish good communication with the supply chain because they need to know what the demand would be for each of the parts so that they can forecast the needs so that they can plan ahead and order the necessary materials and supplies do that they do not have to wait three days for the messing parts. Currently the inventory control “system” consists of orders for stock replenishment being made by the stockroom foreman, the purchasing manager, or the manufacturing manager whenever one of them notices that the inventory is low. An order for replenishment of inventory is also placed whenever someone (either a customer or an employee in the assembly area) wants an item and it is not in stock.

I would recommend changing this system, they need to establish the number of parts that would be needed in a weekly basis and replenish as the item is used so that they do not run out of the necessary parts and supplies. The company currently employs 23 people with the management team consisting of the following key employees: president, sales manager, manufacturing manager, controller, and purchasing manager. The abbreviated organization chart reflects the reporting relationship of the key employees and the three individuals who report directly to the manufacturing manager. I would recommend having different departments manufacturing, sales department for repair parts and sales department for supplies.

All three departments need to be in communication with the purchasing manager that will need to be informed in order to make all the necessary purchases to maintain an appropriate inventory for all three departments. This will help save the company some money on payroll. I would also recommend that the inventory for the manufacturing department be kept in the warehouse as well as the other items that way there can be more control on the parts that go out so that they can be promptly replenish.

Currently the stockroom is well organized, with parts stored in locations according to each vendor. The number of vendors is relatively limited, with each vendor generally supplying many different parts. However they could also separate the parts and supplies per department so that it would be easier to find and less man power would be needed creating a saving in payroll and payroll taxes.

References

Stevenson, W.J. (2011). Operations management (11th Ed.). New York, NY: McGraw Hill/Irwin


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