Harvey Industries Case
Running Head: Harvey Industries
BUS 644: Operations Management
Instructor
Harvey Industries’ is experiencing issues with their current inventory control system. The first step in the process to improve the efficiency of the inventory management system is to identify the weaknesses of the inventory management system and their corresponding financial impacts. After the areas of concern are identified, solutions can then be developed.
The first area of concern identified is that there is no one single person who is responsible for managing the inventory levels. Therefore, there is no one who has the responsibility for ensuring that inventory costs are minimized. A second area of concern is that there is currently no policy in place which sets the optimal stock levels for each item in inventory. This is a critical issue because out of stock items lower revenue and leads to dissatisfied customers. A third area of concern is that it appears that just one person has access to inventory and the same person holds the responsibility of maintaining inventory records. This is concerning as it can create a conflict of interest and allows for the opportunity for inventory fraud and mismanagement. A fourth area of concern is that stock outs are occurring in the assembly area because no one is responsible for maintaining the inventory stored in this area. When stock outs occur in the assembly area, there is a loss of productivity which leads to added costs to the company. The final area of concern is that there is no paper trail when it comes to controlling and monitoring the inventory levels for the assembly area. Since there is no way to track the inventory used in the assembly area, there is a possibility for inventory fraud and pilferage.
In response to the issues discussed above, several recommendations have been developed to improve the inventory control situation.
First, separate departments should be created for each of the services that Harvey Industries’ provides. Furthermore, a specific person should be designated for different tasks such as: inventory record maintenance, physical inventorying of both the stock room and assembly areas and regular inventorying of each dispenser to limit the occurrences of stock outs. By separating the physical inventorying from the record keeping for the inventory, the opportunity for fraud is reduced.
Second, EOQ, economic order quantity, for independent-demand items should be implemented. EOQ is utilized to establish an optimal order quantity and will result in lower inventory costs for most items.