Review of the Current Situation
Calculations:
Average Inventory for plastic brack product line (which is 85% of total construction hardware inventories = Beginning Inventory + Ending Inventory/2
Average Inventory= 295,200*85% +271,000*85%/2 = $240,635
Inventory Turn = Cost of Goods Sold of Construction Hardware/ Average Inventory
Inventory Turn= 1,874,000/240,635=7.79 ~ 8 days
These calculations suggest that the average inventory is worth of $240,635 and the inventory turnover is 8 days, which means that the finished inventory is delivered for sale to the customers after eight days of moving into the warehouse. It suggests to me, being very close to the physical quantities and the statements, that the space in the warehouse will be captured for 8 days, which can increase the holding cost and increase the chances of damages while the inventory is kept in the inventory. Apart from that, the cost of keeping these inventories is held for that much period. This also indicates that the demand for the product is less whereas the supply is more, which is evident from the fact that inventory, is kept on hold for 8 days. Furthermore, another area of concern for our organization is that if the inventories are kept on hold for this much period, price fluctuations in the market can cause problems. Our organization will purchase the raw material required on a certain cost, but they may have to be sold on lower price if the rate of raw material in the market falls down.
Goals and Objectives
As an expert, I suggest that the primary goal of developing this inventory control plan is to reduce the turnover rate by effectively controlling the inventory to such an extent that costs of holding the inventory are reduced. Furthermore, I have done this to meet the fluctuating demand of the markets, benefiting our organization and giving it the ultimate success. If in case the prices of the plastic bracks sold by EMC are reduced, then company can face losses. As a result, all the efforts are put to ensure that the plan’s goal should be to improve the overall process that will help in efficient dealing in the market for the plastic brack product line.
Plans/ Action
Inventory control is quite essential for any manufacturing business that wants to have the competitive advantage in the market (Williams & Tokar, 2008). In the same way if EMC uses effective planning for its inventory control then efficiency and productivity are likely to increase, leading to cost control, reduction and overall productivity and profitability of business. As I mentioned above, in a manufacturing business such as EMC, it is important to control the cost of inventories as that brings great effects to overall margins. For a better control of inventory, that I see for now lack some planning, I advise EMC should introduce various techniques such as just in time(JIT) production, batch order processing, or economic order quantity that lead to cost control reduction, better flow of products and their production, freeing up funds to be utilized somewhere else too (Chung & Choi, 2013). In the modern era, such an approach is required to reduce the costs of business operations to gain advantage of the available opportunities for EMC.
Requirements for Just In Time Production System in EMC
- A close to accurate development of an information system by EMC
- Efficient Purchasing by maintaining good relations with key suppliers who are willing to sell quality raw materials to EMC in batches
- Keeping hold of Reliable Suppliers
- Efficient Handling of Inventory and its transportation to retail outlets smoothly
Steps for Implementing Just In time
- Commitment of Management
Management should be committed in implementing this model for their production.
- Reducing Lot sizes
The lot sizes should be reduced and smaller batches should be introduced
- Training of Employees
Employees should be trained to get familiarize with the system by providing them with workshop sessions.
- Developing a Maintenance Plan
Operators of Assembly should be trained to have a routine checkup to avoid interruptions and maintenance department should be in close contact to provide a backup.
- Vendor Lead-Time Reduction
Lead-time of vendors should be reduced with a reduction in vendor lot sizes.
- Sole Sourcing
EMC should look for a sole source for their raw material, as it will help in avoiding conflicts. I feel it is important that EMC should also keep a close check on the prices of other vendors and their capabilities. Furthermore, EMC should ensure that their suppliers’ posses a quality control certificate which will help EMC in getting quality raw material for their products.
Economic Order Quantity
In order to apply the JIT model, EMC should look for Economic Order Quantity, which will help them in reducing their ordering and holding cost. However, its application is much depended upon a constant flow of demand. For that matter, EMC requires a forecast of previous years demand so that a quantity is determined to ensure the balanced supply of plastic brack product line into the market.
EOQ= √2 (Ordering Cost) (Demand)/Carrying Cost)
Justification
For the ultimate reduction in-process inventory, remaining in each step of the production line it is essential to ensure the system to pick up process after you order to pre-process the amount that was used in each process (Wang & Yan, 2009). In order to improve the flow of the process, production lead-time should be reduced. In addition, by the inventory reduction commencement, improved cash flow can also be expected. Just in time is the process in which a firm is able to deliver what the market needs in real time. Just in time production, strategy allows companies to thrive in an increasingly competitive business environment (Holl et.al, 2010). Apart from that, this new philosophy offers to improve quality and competitiveness of companies. During the recent years, the competitive relationships maintained by the major industrialized countries have changed. Some nations’ industrial tradition were overcome by less tradition, among which Japan is the most relevant example, with high quality products and low prices, achieved through excellence in manufacturing and using it as their main competitive weapon. EMC needs to follow the techniques of countries like Japan where products have competed and won markets based on its superior quality and flexibility, as well as meeting customers’ needs and market opportunities (El Dabee, 2013). From the information given, I agree that EMC is performing better, but the introduction of Just in Time will bring more efficiency, reducing inventory costs by limiting the issues that are related to holding down of inventories. I advise EMC to make products according to the demand rather than for storing. This will help in coping with the fluctuation of market prices for related goods, which in the current case can cause losses for EMC, may even bring significant deterioration in profitability, liquidity, and stability if the worst situation arises.
References
Chung, D., & Choi, B. (2013). Just-In-Time Scheduling Under Scenario-Based Uncertainty. Asia-Pacific Journal of Operational Research, 30(2), -1
El Dabee, F. F., Marian, R. R., & Amer, Y. Y. (2013). An optimisation model for a simultaneous cost-risk reduction in just-in-time systems. Australian Journal Of Multi-Disciplinary Engineering, 9(2), 139-147
Holl, A., Pardo, R., & Rama, R. (2010). Just-in-Time Manufacturing Systems, Subcontracting and Geographic Proximity. Regional Studies, 44(5), 519-533.
Wang, H., & Yan, H. (2009). Inventory management for customers with alternative lead times. Production and Operations Management, 18(6), 705-720.
Williams, B. D., & Tokar, T. (2008). A review of inventory management research in major logistics journals. International Journal of Logistics Management, 19(2), 212-232.
