Parts Emporium Inventory Management Case

 

Parts Emporium is a distributor of automobile spare parts in wholesale and is currently located in the south side of Chicago. The company is under the ownership of two partners Ed Spriggs and Dan Block. Over the years in operation, Parts Emporium Inc. had managed to transform from selling automobile parts out of the premises, which expanded the business making it the top distributor of automobile parts in a monopoly market within the north-central region. Recently, the capacity of inventory projected from about 65% to 90%, which resulted in stagnant growth of sales. Consequently, the owners were forced to hire an outside manager for the first time since the company will be established. Block and Spriggs hired me as the inventory and operation manager to identify the problems causing a stagnant growth rate of the sales, as well as provide the most appropriate solution to cull the issues. In this paper, I seek to examine Parts Emporium Case and report the inventory management of EG151 exhaust gas and DB032 drive belt products to Spriggs and Block.

As the inventory manager, I was able to identify several issues affecting the growth of product sales in Parts Emporium Inc. In this case, each of the problems can be either short-term or long-term since the attention is required with immediate effect but averting and furnishing may take longer. The main issue is about customer services, which is not as effective and efficient as needed. Parts Emporium Inc.’s supply chain involves the owners who are not exceptionally equipped and skilled to manage the company, sales and marketing department, customer service management, and human resource department (Ha et al., 2016). The main issue likely to affect the growth of sales for the business is poor management from all the departments. In particular, the owners are not very good managers and still operated a company without qualified personnel for the managerial roles.

Another problem I managed to spot is in the sales and marketing department, where the marketers are not fully aware of the most effective and efficient marketing techniques giving significant competitors and the upper hand. Finally, the customer service management also majors their focus on selling while they should provide a friendly and satisfactory service to the customers (Krajewski et al., 2013). Such issues can be efficiently dealt with by hiring a qualified and skilled purchasing or slightly sales and marketing manager to improve the department’s effectiveness and performance. Additionally, the company should offer training programs the customer service department to improve its service delivery skills and proficiency (Krajewski et al., 2013). Hiring an inventory manager will ensure that all inventories area adequately prepared and managed. I intend to improve the company’s profit margin by increasing sales growth through appropriate inventory management.

As the company’s owners, I have made a crucial decision to examine two products DB032 and EG151 to understand the inventory system of management as well as propose the most appropriate policy for Parts Emporium Inc. In this regard, I examined the plans and identified the most effective one, which will increase the sales growth rate by yielding the lowest cost. In my investigation, I tested the two most appropriate inventory systems for the business, which include the periodic inventory system and the continuous inventory system. From the two products I selected, I collected data, analyzed and computed to find out that the most appropriate and effective system for we business, Parts Emporium Inc. is the continuous inventory system. We company provides an estimate of a cost held in the inventory at 21% of the inventory investment (Sangeetha, 2020). In this case, the opportunity cost is found to tie the funds in the stock, while the variable costs recognized by the percentage cost entails insurance, shrinkage, and taxes.

I now take the opportunity to introduce the continuous inventory system to you and include all relevant costs. Under the constant inventory system, the utilization of our new warehouse in Chicago has projected the Economic Order Quantity (EOQ) from 65% to 90%. As a result, a considerable amount of the company’s funds are held in the inventory (Babiloni & Guijarro, 2020). Based on the calculations of EOQ, inventory costs, as well as the total annual inventory, should be minimized by the lot size (see table 1 below). Product DB032 has a safety stock of 162 units, while EG151 stocks 279 units. Accordingly, I have concluded to maintain a top-notch level of quality services to satisfy the customers, and maintain a cycle-service of not less than 95%, which results to a loss of 10% of consumer demands to the core competitors (Babiloni & Guijarro, 2020). Financially (see the table) expenses are not seen, because reserves (stock) is accumulating in the “investment” line. The only index, indirectly signalizing about overstock and most of the time it is viewed once every year is overall stock turnover. Usually, signalizes about the problem, but it fails to show how to solve the problem (Haughton & Isotupa, 2018). In this case, it is quite evident that the continuous inventory system promotes the company’s sales growth and profit margin by reducing the stock-out, order costs, and cycle inventory.

Variability in Costing can lead to degrading of performance of any organization. Companies tend to make mistakes by overpricing or underpricing the goods, which affects both the market reputation and demand of that particular product, which later acts as decrease (Haughton & Isotupa, 2018). As we know, Procurement is an integral part of the supply chain to produce the final product, so what does an Organization procures precisely for the final product. Its Raw material, Machines, spare parts. Since profit is a necessity to sustain in the market we will pass on these cost to the final price of the product. Because of many different types of “Saving” system minimum order quantity (EOQ, MOQ), or minimal transportation order and similar partitions blood of the company’s money are frozen in the warehouse (Babiloni & Guijarro, 2020). Every business needs increased Topline and decreased Bottom-line for a successful business. Supply Chain Management takes care of each aspect of one of the bottom-line Procurement by doing Strategic Planning, Capacity evaluation and enhancement, Procurement methodology, Inventory Management, Price negotiation, Statutory and regulatory requirements, Cost Optimization, VA/VE activity, Supplier Quality Management, and Supplier Performance Monitoring.

In summary, I recommend reducing our expenses by reducing the company’s overstock. But, there is one massive problem connected. If the companies understand what means not to have the correct product, because the shelf stays empty, having too many products is a different - foreign concept to them. This is the beginning of point wherein system we need to optimize the cost. Here I am excluding the fixed fees like Interest, Operating Cost and other legal liabilities. Once the final product is ready, we need to ship those to target customers as per we sales plan. In this case, we company will be forced to underprice the products and try to empty the warehouse to avoid further losses and wear and tear issue. To prevent this kind of scenarios, we need to have a full-proof Supply Chain model designed for we industry, which in we case is the continuous inventory system, where we have to be extra cautious to avoid or minimize unforeseen exigencies.

 

Week	EG151 Actual Demand	DB032 Actual Demand
1	104
2	103
3	107
4	105
5	102
6	102
7	101
8	104
9	100
10	100
11	103	18
12	97	33
13	99	53
14	102	54
15	99	51
16	103	53
17	101	50
18	101	53
19	104	54
20	108	49
21	97	52

Table 1: Actual Demands for both EG151 and DB032

 

 

 

 

 

 

 

 

 

 

                                                                     References

Babiloni, E., & Guijarro, E. (2020). Fill rate: from its definition to its calculation for the continuous (s, Q) inventory system with discrete demands and lost sales. Central European Journal of Operations Research, 28(1), 35-43.

Ha, A., Long, X., & Nasiry, J. (2016). Quality in supply chain encroachment. Manufacturing & Service Operations Management, 18(2), 280-298.

Haughton, M., & Isotupa, K. P. (2018). A Continuous Review Inventory System with Lost Sales and Emergency Orders.

Krajewski, L. J., Ritzman, L. P., & Malhotra, M. K. (2013). Operations management: Processes and supply chains (Vol. 1). Upper Saddle River, NJ: Pearson.

Sangeetha, N., Karthick, T., & Sivakumar, B. (2020). Optimal Control of Postponed Demands in a Continuous Review Inventory System with Two Types of Customers. International Journal of Information and Management Sciences, 31(1), 1-14.