Procurement and Inventory Management - Essay Example

Procurement and Inventory Management Introduction Sound Electric Limited deals with the sales and repair of electrical equipments mainly Television sets. The company has various branches spread all over the United Kingdom with a centralised head office in Liverpool. The company has been experiencing some management problems caused mainly by it’s staff who posses little knowledge and skills regarding what they are supposed to do in their line of duty. Most of these management problems are discussed below with some suggested solutions and recommendations. Problems under Inappropriate Procurement The company has been realizing very low profits occurring as a result of employing staff who completely lack necessary commercial skills or even commercial experience in the procurement field. There is also very high cost of stocks which occur as a result of the unskilled staff failing to compare prices from a number of suppliers. The company receives poor directions and proposals from many of its staff members who do not possess any experience on commercial activities leave alone the exposure. Better working practices are never achieved because Sound Electric Limited lacks a clear policy document or procedures of operations which touches on contracting and purchasing. There is poor record keeping technique such that it is always hard for the company management employees to retrieve updated data along with more current entire company’s level of stock. It is also hard for the auditors to retrieve the same data a thing that will result in improper auditing thus creating room for theft in the company. The resultant effect is failure in closely controlling the company’s working capital thus failing to monitor correctly the true business progress. The whole system lacks accountability due to the fact that stock control and purchasing performance are not very well monitored making the staff determine their own precedence thus unbalanced cost considerations a thing that can greatly contribute to the failure of the company. ` Invoices are settled without a delivery proof or even a certification as to whether the items received are the actual quantities reflected in the invoice. This has seen the company loose cash as a result of buying similar items from a supplier at varying prices. The company has been greatly undermined by the suppliers who feel that Sound Electric Ltd has poor specifications. There is lack competition when it comes to purchasing, requires no confirmation as to the obligations met by the contractors, does not negotiate for price reduction, lacks knowledge on suppliers cost, the company’s contracts fails to have conditions attached and lacks important knowledge about the contractor’s financial capability. The company has been favouring a single supplier a thing that has led the supplier enjoy monopoly in supply, contracts and money orders fails to have price quotations and lastly the unskilled staff failed in the production of the documents involved in procurement. There is ineffective cost control in each and every project of Sound Electrical limited. This is because the concerned staff member fails in putting together the cost figures for each project of the company. The scattered cost figures of the company will never allow an effective cost control measure to take place thus Sound Electrical limited will end up losing a lot of money as a result. It has resulted into increased workload for the company’s property administrator making it impossible for him to carry out his duties effectively. With such increased workload the property administrator will be confused on which contracts should concentrate on and he will end up doing very little as opposed to when the workload is manageable. This has in return interfered with the contracting, tendering and the cost of control, making it almost impossible to handle twenty contracts at a go. There has been considerably increased expenditure on miscellaneous purchases following the fact that some purchases are made by the Manager in charge of the head office post room while others are carried out by the support staff in charge of operations at the computer centre plus those staff within the TV Rentals who hold marketing and operations responsibilities. This disorganised purchasing will result in the loss of money by the company because it may happen that an item is purchased more than once thus making it useless in the long run. Purchasing ought to be done by an experienced staff member who possesses purchasing skills so as to make the right purchase of the right product. There has been certification of invoices in the absence of references to very vital documents, for example, the contract. Those contracts from the Head Office for cleaning, security and catering are not stored or filed for future reference It has resulted into unnecessary overstocking that has culminated in the loss of finance through obsolescence of the stock in store and also increased cost of warehousing. Acts of fraud can also occur as a result invoices certification without the required references. Making Procurement More Pro-Active Though they can dwell on one particular vendor , it is very important for Sound Electric Limited to carefully weigh up the many suppliers relative to the many required sources or those sources with friendly prices. If the company realizes that there is another vendor offering better rates, then it is supposed to go ahead and use that supplier. The basis for moving from one vendor to the other is largely connected with quality, price and legality such that the more they move to other suppliers the better the prices offered, the better the quality of the new supplier and the higher the legality attached. The Company should create room for competition amongst many suppliers which will result in better services and pricing. The management of Sound Electric Limited should ensure that the hired staffs have the required commercial skills and experience. Besides, they can start a rigorous training program for the current member of staffs. The end result will be increased profits following the commercial expertise by the now skilled staff. The company should employ clear policy documents and operations procedures on contracting and purchasing thus achieving improved working practices. Sound Electric Limited should adopt a good store and record keeping system which should be regularly updated, well stored for future reference and their retrieval system simplified. With these the Company’s working capital will be closely controlled. 1 Stock control and purchasing processes should be strictly monitored so as to achieve balanced cost considerations and accountability in the whole system. At no one time should the staff settle invoices without confirmation of delivery and certification that items received are the actual quantities reflected in the invoice. These measures will ensure that the Company does not loose cash as a result of buying under packed items. Sound Electric Ltd should negotiate for price reduction from the vendors, outline proper specifications of items required, confirm whether the contactors meet the right obligations, equip its staff with the vital knowledge of the suppliers cost , ensure that they attach terms and conditions in their contracts , assess the contractors financial viability, avoid favouring one supplier as this will see the vendor enjoying monopoly of supply to the company’s disadvantage, money orders & contracts should have price quotations on them a thing that will avoid loose of finance through purchasing the same items at different prices from the same supply and lastly all document involved in the whole process of procurement should produced and well stored to ensure that accountability is well observed. 2 The company should create an atmosphere that encourages competition from various vendors a thing that will make suppliers develop confidence with ruling out any instance of being undermined. These will in return improve the procurement procedures and the end result will be improved business accompanied with increased profits. Cost figures for each project under Sound Electrical limited must be well put together a move that will ensure that effective project’s cost control measures are adopted. . The increased workload on the Company’s Property Administrator should be reduced either employing an Assistant to the Administrator or reducing the number of contracts to be handled at once from lets say twenty to about twelve. This will ensure continued smooth flow in the tendering, contracting and the cost control processes. Miscellaneous purchases should be centralized to avoid a situation where some purchases are made by the Manager in charge of the head office post room while others are carried out by the support staff in charge of operations at the computer centre plus those staff within the TV Rentals who hold marketing and operations responsibilities. This will reduce the increased expenditure made on miscellaneous purchases a thing that will be reflected positively by the increased gains. A particular individual should be left to carry out the miscellaneous purchases so as to ensure that accountability is well achieved. Effective Contract Negotiations To achieve contract negotiations that protect the Companies interest thereby reducing risks Sound Electric Limited should ensure that, agreement with the vendors must be well controlled, executed and effectively negotiated. The contracts lifecycle should be properly addressed bringing out improved negotiations cycles in contract development, appropriate contract approvals, unlimited contract feasibility control and ability to ensure that vendors abide by the established terms and conditions of the contract. The company should consider installing contract management software that will help in addressing contract related issues. The software provides the required control and visibility in creating better agreements that actively guarantee that contractual commitments are met by the supplier’s thus managing and assessing performance against the contracts terms and conditions. The company should shun sub- optimal contract terms, conflicting contracting procedures, delayed contract cycle times plus any form of missed returns and savings opportunities a thing that leads to improved supplier contracts and well developed business operations. The contract management software will bring about well designed and integrated potentiality that promotes the existing procurement application and operational systems to a much higher level thus the effectiveness of the existing application is properly maximized. 3 The cycle times from sourcing will be accelerated through proper contract approval by Contract management software as it also helps accelerate cycle times from sourcing through contract approval by electronically generating the creation of a contract as a subsequent of a sourcing event. Sound Electric Limited will henceforth recognize savings negotiated with the sourcing applications. The application will make certain that supply chain, procurement and many other operation systems are properly matched with accurate and more current contract information which will help in minimizing occurring errors, risk reduction and implement internal conformity with contract terms. 4 More developed contract management software will actively certify and monitor requisitions against the contractual terms and conditions. As a result invoices will be validated against the agreed contractual terms thus confirming proper receipts of goods and services before any payment transaction is made. Powerful purchasing and contracting procedures are arrived at resulting to increased usefulness of the spend scrutiny application as a tool for decision-making. 5 Contract management software will also help Sound Electric Limited in the continued monitoring compliance by alerting the concerned staff of any emerging differences between pending transactions and the contracts. By the mere achieving of compliance the Company will be in a better position of dedicating significant resources in forming vendor relationships and creating well-built contracts. This will help in assessment of the individual’s and combined transactions in their enterprise resource planning structures against their agreements thus protecting the unnecessary loss of earned refunds and discounts avoiding a case where the company would have suffered stern consequences if the vendors fall short in meeting their business agreement. 6 Integrating with the enterprise resource planning systems the software application will ensure that carried out transactions act in accordance with actual terms of agreement which permits monitoring and regular management of the compliance by the supplier. This will ensure that the suppliers will meet the delivery and quality as to the company’s expectations, confirmation of payment schedules, discount receiving and invoice verifications to ensure that they properly reflect the agreed terms and conditions. Sound Electric Limited should ensure that it has a purchase requisition order a document that will be used to in requesting the purchase of every item within the company. A requisition that is well completed and fully authorized will serve as an indication that the item is required and that the needed funds for it’s purchase are available through a given source with the request made being genuine and not conflicting with the law whatsoever. 7 The Existing Approaches and Further Recommendations The current inventory management approach is not well defined because the technique for keeping proper stock records is very poor which makes it hard for the management to establish the entire company’s stock level. It has been very hard to retrieve any updated data regarding Sound Electric level of stock. The current system lacks accountability due to the fact that stock control and purchasing performances are not properly monitored resulting to unbalanced cost considerations since the staffs are left to determine their own precedence. Sound Electric Limited needs to change its Inventory management approach so as to meet the market place demands thus supporting the company's calculated plans. The emerging new global marketing opportunities, adopting a new Inventory management approach that will keep pace with the dynamic world should check worldwide material sourcing and modern manufacturing technology. 8 The Company can therefore adopt the following approaches; Contracting an agent to carry out procurement from manufacturers on their behalf. This will be the best approach for this company whose staffs lacks necessary skills and experience in the procurement procedures. However, they must ensure that the hired agent is well conversant with procurement operations and holds high qualifications on the same. This will help the company undertake large and more complex procurements. Technical support should be applied to the tender if the company logistic is not strong. Contracting a social marketing organization for promotion, distribution as well as procurement. This will be very important where the Company might be willing to integrate procurement with its promotion and distribution activities. Procuring directly from the manufacturers. This calls for the company’s proven track records and is the most preferred for large procurements. This will require Sound Electric Limited to have a well-developed system for logistic management and distribution. However to adopt this system the company should ensure that its staff members are well trained on matters pertaining to procurement. 9 Conclusion Clear policy documents and procedures of operations that touch on contracting and purchasing will be very essential for Sound Electric in the realisation of its profits. The company should make an effort of fully training its staff members so as to equip them with the necessary commercial skills a guarantee to the business success of the company. An organised record keeping technique will lead to data enhancement and retrieval along with updated company’s level of stock. The system also includes accountability through proper monitoring of purchasing performance which resulting into balanced cost considerations a major boost to the success of the business. 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