Running Head: HARVEY INDUSTRIES CASE STUDY

Harvey Industries Case Study

Vu Hue

ID: 830132204

City University of Seattle

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Executive summary

Harvey Industries is a company specializing in assembling high-pressure washer systems and

selling spare parts for that system, although the main work is to assemble the equipment for coin-

operated self-service car wash systems [ CITATION Ste15 \l 1033 ]. Within 3 years, the company is

at a loss so they need to change strategies and plans to the current inventory management system

as well as develop strategies to improve corporate profits. Besides, the inventory welding control

has a significant impact on Harvey Industries' profitability because it is an assembly company so

most of its assets are inventories. However, the problem related to inventory control arises when

a company does not have an accurate declaration and establishes an estimate of the number of

items to buy with each order to help reduce costs while still responding enough inventory to meet

demand [ CITATION Kha15 \l 1033 ]. It is even more important for a business manager to realize

that there is a significant cost if large quantities of items are in stock for too long before they are

sold.

This shows that the big stock holds a lot of capital which can be used to buy other items for

sale. In addition, if a customer orders a few items for sale, the seller will incur a fee known as a

relatively low storage fee but may not have met all of the customer's needs. The order quantity

system will ensure both costs are minimized and the amount of inventory is stockpiled at the

appropriate level [ CITATION Nar04 \l 1033 ].

Inventory management problem

In this case, Harvey Industries is facing an inventory management problem due to a lack of

effective control and management measures. In the current status of the company's inventory

system, a shortage in stock is replenished. This is a warning sign for the company when
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inventories are not strictly monitored, leading to the risk of shortages for some products. This

poses a challenge for a purchasing manager, who will make frequent or sometimes random

orders to suppliers or for departments that have difficulty budgeting. Orders will also require the

purchasing manager to change the market price, where the company is forced to stock other parts

at the current price or they face stock shortages [ CITATION Wat03 \l 1033 ].

In addition, a lack of budget will cause purchasing managers to miss out on attractive

quantitative discounts offered by suppliers, which can help improve the company's bottom line

[ CITATION Das19 \l 1033 ]. Moreover, since the demand for repair parts is always stable because

the car wash equipment is used regularly, the lack of spare parts will be the cause of long-term

losses for the company.

However, Harvey Industries has a well-organized stock room where parts are arranged

individually by the supplier. While this makes it easier to locate a particular part produced by a

particular supplier, identifying deficiencies in a particular part can be a problem for any supplier.

This could explain some of the shortages and out-of-stock situations facing the company.

Companies sometimes have inappropriate inventory control systems due to the lack of proper

control features or an emphasis on using paperwork. However, there is no paperwork to be filled

out when the warehouse enters or sells the items needed for assembly, so this poses threats when

stock items are embezzled. Employees can also be one of the factors that cause inventory

shortages as they can steal items in stock and lack of accountability due to lack of documentation

will only increase the company’s losses. Small items such as nuts, bolts, washers, etc. that are

unmanaged and unattended will cause delays or even shutdowns and cost Harvey Industries

when they are out of stock.

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All of these are critical problems of a poor inventory management system, which reduces the

company's ability to increase profitability. With the inappropriate inventory management model

that Harvey Industries is applying, it makes it difficult for companies to control, manage and

comply with the budget, while they still have to maintain satisfaction levels for all of their

customers.

Potential solutions

The economic order quantity method can help improve a company's situation. Thanks to this

method, the advantage is that it allows the company to cut down on ordering and storage costs

while allowing a sufficient inventory to be stockpiled to meet all inventory needs as well as take

advantage of quantity discount rates from the supplier [ CITATION Sam15 \l 1033 ]. Regular check

and control within the company will allow the company to well manage its inventories by

ensuring that control measures are appropriate for taking-stock. Checking and reviewing will

bring accountability, reduce losses arising from mismanagement and mismanagement of

inventory. Also, companies may consider cheaper alternatives to their parts to reduce purchasing

costs.

Keys elements

Key factors to consider in this case include cost and time constraints. The company needs to

take into account the appropriate inventory level, the cost of an order depends on the quantity of

the orders, along with the discount rate based on the quantity of the items offered. Besides, the

current time is equally important when it is time to wait for an item to be out of stock and return.

This causes delays in operating business, exposing the company to opportunity costs. The
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company should review and evaluate the demand cycle to ensure that the stock is always

stockpiled during the peak demand season.

Recommendation

To improve the existing inventory control system, the new president can consider the

following: the company should build an inventory control system by storing the data in a

computer because the company is currently using many manual steps with complex paper

processes and time-consuming processing. Besides, when the goods are taken from the

warehouse, the inventory records are not strictly controlled. Therefore, Harvey industries can set

up some procedures to record transactions in inventory or invest in a barcode system to control

inventory. If a bar code system is applied, it must be linked to a new computerized inventory

control system. Establishing a cycle count can also be very useful for monitoring and managing

inventory. Therefore, it helps managers to know exactly the status of inventory as well as the

improvement of the inventory management process. Furthermore, the use of the ABC inventory

classification system is essential. The company will not face out of stock for its basic "C" items.

The ABC analysis allows Harvey Industries to establish an appropriate level of control for each

item in terms of quantity and frequency of orders.

Implementation and evaluating solutions

Dividing duties among the management departments is an urgent step because the purchasing

manager or production manager must be tasked with stock control and using the timely economic

order quantity method to avoid interruptions in company operations. Besides, the new manager

will have to initiate the specified procedures as soon as possible while assigning inventory

management to someone else to ensure that there are control and accountability associated with
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inventory issues. Since Harvey industries is an assembly company, most of the assets are

inventories, and there is a need to establish adequate monitoring and control systems.

References

Das, C., & Mishra, K. (2019). Production and Operation Management.

Khanna, R. (2015). Products and Operations management.

Narasimhan, K. (2004). Operations Management: Critical Perspectives on Business and

Management. Managing Service Quality: An International Journal.

Samanta, P. (2015). Inventory Management.

Stevenson, W. (2015). Operations Management.

Water, D. (2003). Inventory Control and Management.