Saturday, June 14, 2008

Rosewood Case Study: Improvement of the inventory management system

Rosewood Case Study: Improvement of the inventory management system

Improvement of the inventory management system will require a long-term perspective on monitoring and managing the problem. Several strategies may be taken to improve Rosewood's situation.

Year-end inventory levels rising: Annual clearance sales of excess inventory may be a solution at such sites as many furnishing companies reduce warehousing by transferring disposal to allow costs to be absorbed. But this represents a short-term solution.

Carrying costs rising:

1. Re-evaluate customer service level required: Are short-lead times required in current and future export markets? How much of Rosewood's inventory may be localized to poinot of sale warehousing in disassembled shipping loads? How much finishing specialisation and options are required to satisfy customers? What is the most cost effective method of meeting customer needs in terms of inventory?

2. Channel Options: What are the best service options in terms of order cycle time (immediate requiring stockpiling versus direct delivery from Canadian manufacturer) or fill rate required (time required between production of each unit and required delivery time) and any possible costs for delay or immediate delivery cycles based on communication with customers. This would require further review of customer "moments of truth" in terms of satisfaction.

3. Overall Transportation Costs: Rosewood will have some serious decisions to make concerning line balancing inbound and outbound delivery schedules for all export traffic. Excesive stem point distances may already exist in terms of US markets, further distant Latin America will challenge Rosewood's current inventory management system exponentially. Warehousing for stockpiles in Rosewood's primary customer regions may already be a reality or soon a requirement. Securing and minimizing costs in the nearest markets will preapre Rosewood's management for configuring a cost effective system in proposed future markets.

4. Carrying Costs: Furniture carrying costs are described as quite low therefore Rosewood is expected to have larger stock volumes and more diversified stocking points at all times trying to carry as full loads as possible prior to customer delivery. Applying the economic order quantity variable may assist in determining where Rosewood may reduce carrying costs and generate higher liquidity of assets allocations. For example, reduced tax holding in maquilladora zones of Mexico may prove an ideal shipping destination for full-loads prior to redistribution to US customers which may be break-bulked and partially shipped through reimport freight forwarding facilities with other products manufactured there.

5. Inventory Handling: However whichever costs prove most effective choices ideally Rosewood's customers would be willing to wait for their premium designed and produced product. Reducing facilities costs with a relocation to Mexico would easily encourage Rosewood to do so with its labour cost savings and relocate the entire manufacturing facility to Mexico as well. However this is the paradox of North American production. Most small and medium sized manufacturers in Canada and the United States remain family run and managed. Very few of these entrepreneurs have fully divested themselves of an ethical and moral relationship to the communities of their origin. As a result while these remain candidates for relocation to Mexico they also represent a resistance to relocation as the essence of their management is localized and self-interested control of family assets. So far it appears emigration from rather than immigration to Mexico is the socio-cultural norm regardless of perceived cost savings.

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