Write 3, select an organisation that you are either familiar with (you may, or may have, worked there) or have researched. The organisation should have a focus on manufacturing or operations such as an airline, resort operator with a high level of direct customer contact. You may also loom at services operations.
You need to nominate the operational aspect of your research in Week You may decide to take on the role of a consultant and conduct an audit of the operation in your chosen aspect of the organisation.
This paper focuses on Schaeffler Australia Pty Ltd which is one of the leading manufacturers of rolling bearings and linear products. This company has also been developing and manufacturing precision products of equipment, vehicles machines as well as in aviation and aerospace application for over more than 10 years. The group visited the company and interrogated some workers on the operational issues in inventory management. According to Jeffry & Jeffry (2015, p.23), Inventory management means keeping track of the company’s stocked products.
During the study, the group found out that the Schaeffler warehouse operators did not apply necessary techniques in inventory management. It was found that they did not apply the FIFO principle when giving out the stock. This is whereby the newly produced products should be the last to be sold and vice versa (Terry 2011, p.62). This led to increased number of torn and worn out equipment in the warehouse.
When producing the products, Schaeffler did not consider the latest and newest machines in town and this increased the number of dead stocks in the warehouses. This is because as time goes on, the technology also advances as well as consumer needs. Since warehouse is a variable cost and it changes depending on the amount of goods in it, this leads to an increase in storage costs. This was due to the continuous production of unnecessary goods which were hard to sell. According to Elena (2016, p.23), deadstock not only increases storage costs but also leads to poor cash flow management.
While manufacturing, Schaeffler does not follow the order list. The order list shows the amount and type of product the customer has requested. This makes the company produce more goods hence increasing the amount of stocks in the warehouse. This has caused spoilage of many products because they take a long time before they are sold. According to Vivek (2011, p.32), inventory management not only saves money but also increases the company profits. Since products are made using the money, it would be better if a company sells them in cash but if they just stay in the stores this affects the amount of cash getting into the business.
It is important for every manufacturing company to have a stock control system in its warehouses. This system assists the warehouse keepers to know which products are moving fast or slow (Vesile 2011, p.73). It also shows the amount of stock to be produced in a particular time. This is according to the demand from the customers. The system also helps in reducing unnecessary stock orders from the managers. For Schaeffler ltd, they did not have this system and this was the major cause having a lot of expired products in the stores. Since this system controls the amount to be produced at a particular time, they ended up producing too much stock hence increasing the storage costs.
It was also found that most of the Schaeffler’s warehouse attendants did not have the necessary skills for store management. For one to work in a warehouse, he or she should have the necessary skills because this is a sensitive area which determines the position of a business in terms of quality (Patrick 2011, p.7). After being consulted, some of them did not understand the meaning of FIFO basis in inventory management. Once goods were requested by the customers, they just picked randomly without giving priorities to those which were produced first. This was one of the major causes of an increased number of worn out machines in the warehouses.
Due to their illiteracy in warehouse management, these storekeepers did not engage in regular auditing of the stock. This involves checking the amount of stock in the store at a particular time and comparing with what was sold in order to know the number of sales made (Patrick 2014, p.11) This can either be done through physical counting or cycle. Physical counting is mostly done at the end of the year for accounting purposes. On the other hand, cycle counting is done daily weekly or even monthly. Schaeffler did not do any of the two regular auditings and this lead to mismanagement of inventory.
The warehouse managers were asked if they have set levels of the amount of stock to be in the store all the time and confirmed that there are no limits and therefore one can request for stocks any time. These levels ensure that the company does not keep excess stock which can lead to expiry products and also there are zero stocks in the store (Patrick & Praffula 2012, p.103). Without these levels, Schaeffler ended up making unnecessary stock orders which increased the number of stocks in the warehouse. Most of the customers ended up being disappointed whenever they visited the company to collect equipment and machines.
The research also showed that the workers in those warehouses were rude and did not consider having a good relationship with the suppliers. Schaeffler had various suppliers since no one could deliver all the equipment required to produce a particular machine. Most of these suppliers did not supply on time what was requested hence causing delays to their customers. Some of them also supplied fake equipment and others did not meet the quantity required. The warehouse managers were not only rude but didn’t communicate well with their suppliers. They were always not aware of the time the company expects a sales increase for them to double their supplies. This made them supply little or no supplies in most times. According to Shankar (2014, p.25), maintaining good work relationship is important for it helps the company improve on its efficiency.
From these findings, the group came up with some measures that should be put in places to overcome this situation. One of these measures recommended was encouraging the managers to always apply FIFO principle in their inventory management. This is by ensuring that the products which are produced first are sold out before those produced last. This would reduce the chances of getting torn and worn out machines in the warehouse. FIFO is important in inventory management because once products take a long time in stores they end up expiring and also the way of modeling keeps changing and this would prevent one from providing old-fashioned products (Robert 2014, p.8). The managers were also advised to arrange their equipment well because FIFO works best in an organized warehouse whereby new stocks are kept behind the old ones.
Additionally, setting per levels is also another way of controlling inventory mismanagement the group recommended to the Schaeffler managers. This is whereby the company should set a limit of the amount of stock to be kept in the warehouse (Dinesh & Lokeswara 2015, p.13). Each product should have its own limit because there are some which are moving faster and others slow. This would reduce keeping huge inventory in the warehouse which increases storage costs. It would also help the company from disappointing their customers whenever they come to buy the products.
Moreover, the company should have a stock control system in the warehouse which would help them in ensuring that they don’t make unnecessary stock orders (Rohit & Sudhir 2015, p.81) This system would also help them in knowing which products have the highest demand. This would help in reducing the number of dead stocks in the stores. Also having regular audits would assist in inventory management, this is whereby a company should set time to identify the level of stocks in their stores. This can be daily, weekly or even monthly. Regular auditing helps in knowing whether the company is making huge sales or not. This process also helps in knowing products which took a long time in the store before being sold. Also, making good forecasting would enable in reducing inventory mismanagement. This involves being able to determine where particular products would have high or low demands in the future. Making good forecasts prevents one from making unnecessary stock orders.
From the findings and recommendations, one can notice that inventory management is the key determinant to the company’s sales profile and the company should follow the necessary procedures of inventory management. However, there are some of the things which can lead to inventory mismanagement. One of them id failing to apply FIFO principle in inventory management which prevents an increase of expiry goods in the warehouse. Also, lack of stock control machines in the warehouse can lead to unnecessary stock orders. Moreover, poor relationship between workers and suppliers can lead to a supply of fake products or little supplies which makes the company not meet its customers’ expectations. These ways can lead to increased storage costs, expired good and also a high number of dead stock. There are some of the measures which should be put in place to ensure proper inventory management. One is that the company should always make sure that the old stocks are sold first before the new products. Also, there should be systems in the warehouses which helps the workers to know which stock is moving faster. This would decrease the level of dead stocks in the stores.
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