You are on page 1of 3

Ali Samatar MGMT 3314 Professor Gary Lister Case Study 1

Austin Wood Products Case Analysis Objective: The main aim of this report is to address the concerns of Dave Pope who is the manager of AWP, and specifically his concern about the companys lumber stockroom operations. First, Dave wants to fix the uncertainty that the company is experiencing in regards to inventory which is usually 50% unreliable. This unreliability is interfering with the company productivity which has now been confounded by the news from the company president that production will increase by 20%. Issues to Address: Stockroom operations the fact that every time a visit to the storage does not guarantee that the material needed would be there is indicative of a wider systemic problem in regards to inventory management. The idea that there is no control of inventory count, availability and measure in real time is a major concern.

Organizational structure: AWP has a major issue with its organization structure. Its somehow centralized, however the duties of a purchasing department is not clearly defined and in addition, the purchasing agent reports to the VP of Finance. The duties of a purchasing agent usually fall under manufacturing or in the case of AWP under the production V.P. At any rate, AWP needs to fix its organizational structure. Inventory: AWP has major problems with its inventory. It has no inventory system that tracks what the company has in stock, whats missing and where the material is. In fact, there are no records kept by the company on the movement of material in its operations. Another issue is the effort and costs of inventory counting the company does every year just to know what it has in its warehouse. It takes 2 full days, 47 workers working from seven oclock to five oclock in the evening for inventory count. The surprising thing is that top management (president and VP of production) dont see this as an important issue. They feel that the company is making profit and the need of keeping track of inventory isnt important since the nature of demand of the business varies and is unpredictable. Analysis: Dave needs to confront the problem head on. The place to start is with top management; however he needs to have facts and figures that will convince his superiors. The concept of top management support for the purchasing department was covered in the text and the need to support all avenues of purchasing was stressed. Dave needs to bring to their attention the need for an inventory management system that will track all the materials within the company. He can

do this by making the argument that even if the company is profitable ($25,000,000 revenues, and $3.5 million in the estimated value of inventory, a 1% savings of costs of inventory can be big), in other word, there is more money to be saved by purchasing a system that will not only save money by controlling materials within the company processes, but it would help with orders, the labor costs that will be saved by the yearly tedious counting , demand forecasting, and supplier management and relationships. A solution for Dave in regards to the increase predicted by the president can also be a justification for the need for better inventory automation. The suppliers that service the company are many and varied. A better supplier relationship should be instituted and the partnership cemented. The integrated buying model can be used by Dave in explaining the problems and the solutions that the company should tackle. For

example, the concept of costs, quality level, lead time and constraints should be applied throughout AWPs processes. Choosing suppliers who employ the philosophy of Six Sigma and pinpointing suppliers that supply the majority of materials that AWP purchases, can lead to discounts that are not currently being realized. In summary, Dave has his work cut out for him. However, there are many avenues he can take that can lead to efficiency within the company inventory, and the savings that can be realized can enhance AWP profits and customer satisfaction. His final argument should be that the purchasing department has to be clearly defined within the organization. He should stress the fact that the current inventory confusion stems from a not clearly defined purchasing department that has no authority. The purchasing agent should be transferred from finance to production since that department directly ties with the job functions and is directly related to the same activity.