Supply Chain Management (SCM)
Subject: Supply Management
Case Study by Thomas Kingsley
There are a multitude of factors that can negatively influence supply management. For example, a mismanaged inventory can result in excess spending and/or waste from of obsolete or expired inventory. This occurs when individuals lack the knowledge to properly analyze, correct, and sustain accurate inventory levels that meets organizational demand within budget
The company is a small organization that employs 200 people. The primary location has employees working out of four buildings. Additionally, the company has three remote offices in two other counties.
Supplies were scattered throughout the buildings and offices, and there was no definitive inventory count or knowledge about how much money was tied up in supplies.
- Reviewed Inventory Processes:
- Thomas found excess supplies at some locations and offices, while others had insufficient supplies.
- In this instance, many individuals were ordering supplies with lack of experience in inventory management.
- Centralized Inventory:
- Thomas created space to store the entire inventory at the primary location.
- Reviewed The Inventory After The Consolidation Of Supplies:
- Once all supplies were centralized, Thomas categorized and counted the items on hand.
- Thomas found printer toner that was no longer used because of hardware upgrades. The value of surplus toner was in excess of $30K. Since most of the surplus toner was expired (some expired by several years), this resulted in a loss of capital because the toner can no longer be returned to the vendor for credit.
- In addition to the excess toner, other supplies were either short on supply or there was an overabundance thus further revealing a broken inventory process.
- Reviewed Costs With Vendor Account Manager:
- Thomas scheduled a meeting the vendor to discuss cost. He learned the previous manager never had a meeting to discuss cost since the inception of the relationship. Thomas was able to attain lower supply pricing by simply having a conversation with the vendor to discuss current purchasing levels.
- After the meeting, Thomas also contacted a General Purchasing Organization (GPO) to discuss supply needs. Since the buying power of a GPO capitalizes on the total number of companies who purchase from them to leverage lower pricing, Thomas was able to reduce supply expense 40% using the GPO. The change in vendor saved his organization $60K annually. The result provided Thomas the money he needed to purchase the tools and supplies the company desperately needed.
- Built A Standard Operating Procedure (SOP) For Inventory Management
- Thomas built an inventory management process to ensure supply levels do not fall out of protocol and cost the company excess money.
- Inventory is now centralized and dispensed in accordance to protocol, and delivered by office delivery personnel.
- The organization is no longer paying shipping costs to multiple offices, thus saving the organization additional money.
In this case study, the organization had inexperienced individuals overseeing the ordering process without supervision, and the organization lacked appropriate protocols to maintain proper supply levels. These two factors resulted in excess spending and waste from of outdated inventory that can no longer be used.
Every organization should have their processes documented via Standard Operating Procedure (SOP) to ensure operations are correctly carried out in the same manner every time they are performed. In this case study, process documentation and having interdepartmental communication would have helped the organization avoid spending excess money on supplies. The result of improved supply management and communication will ensure funds are available for supplies and tools the organization needs.
Another critical aspect to consider when dealing with supply management pertains to the client/vendor relationship. In this instance, there was no communication between the client and vendor. This resulted in a missed opportunity to attain lower pricing. The lack of understanding about the importance of renegotiating supply cost resulted in a massive loss of funds that could have otherwise been used for other organizational needs.
Furthermore, one should have the cost conversation with their vendor on an annual basis at a minimum. Of course, if volume is significantly and/or steadily increasing, the cost conversation can always come up. However, it’s also important for individuals to understand their vendor pricing structure because most vendors offer volume-based pricing. If the contract does not stipulate volume-based pricing, one should inquire.
Supply management is about analyzing, correcting, and sustaining accurate inventory levels that meets organizational demand within budget.