The new company President has identified many problem areas—one of which is impr

Question

The new company 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 for a new system and your rationale for each of those recommendations.

Harvey Industries CASE 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 cutdoors during the winter months. Typical uses for high-pressure water cleaning include: 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 sales, Harvey Industries is primarily an assembler of equipment for coin oper- ated 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 dispens- ers. The products include towels, tire cleaner, and upholstery cleaner Airplanes Bulding maintenance Engines Lift trucks Swimming pools Ice cream plants (continued) President Sales manager Controller manager manager Stockroom foreman Quality engineer foreman In recent years Harvey Industries has been in financial difficulty. The company has lost money for three of the last four years, with car wash equipment, there is a steady demand for the various repair parts. the last year's loss being $17,174 on sales of $1,238,674. Inven- The stockroom is well organized, with parts stored in locations tory levels have been steadily increasing to their present levels of according to each vendor. The number of vendors is relatively limited with each vendor generally supplying many different parts. For exam- ple, 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 $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 washes. manufacturing manager. Current Inventory Control System The current inventory control "system* consists of orders for stock replenishment being made by the stockroom foreman, the pur Service the same day. chasing manager, or the manufacturing manager whenever one of Because of the heavy sales volume of repair parts, there are gen- erally two employees working in the stockroom-a stockroom fore- man 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 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 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. Some inventory is needed for the assembly of the high-pressure equipment for the car wash and industrial applications. There are cur- rent and accurate bills of material for these assemblies. The material Paperwork is kept to a minimum. A sales slip listing the part num- needs to support the assembly schedule are generally known well in bers and quantities sold to a customer is generally made out for each 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 sale. If the assembly department needs items that are not stocked on the assembly floor, someone from that department will enter the stock room and withdraw the necessary material. There is no Daperwork made out for the items needed on the assembly floor. (continued) 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. New President Because of the recent death of the owner, the trust department of a Milwaukee bank (as trustee for the state) 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 recom- mendations concerning a revised inventory control system. What are your recommendations and their rationale? 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 con- cemed about the company's ability to continue in business. Recently the company sold off excess vacant land adjoining its manufacturing Case Writer's Association Workshop, 1984. Copyright1984 Donald Condit facility to generate cash to meet its financial obligations Source: Case "Harvey Industries" by Donald Condit presented at Midwest Reprinted by permission

Explanation / Answer

Recommendations for inventory control:

By using above methods and keeping a supervising eye on everything will lead to usage of all the inventory productively.

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