Introduction
Durable Vinyl Siding Corporation (DVS) is a leading manufacturer of vinyl siding products for home and commercial buildings. The company experiences high record sales year on year, topping $250 million in 2006, which was 15% higher than in 2005. Although this is the case, it is facing increasing operating profits which is eating into net profits of the company, originating operations in the company that the management is seeking to put under control. In our case, we will consider procurement department operations and point out what the company can address to arrest the rising costs.
Organizational changes
Organizations come with changes, and it is important that these changes are well articulated. Organizational changes are bound to happen. The changes should be taken well so that the overall structure comes out well. The company added staff almost every year and who have proved from the analysis that they are a burden to the payroll. The staff has over the past been assigned as buyers of products of the specific group but this has to change with an immediate effect.
The company can do restructuring by doing a critical job evaluation to see what job skills are needed and keep them and those who are found to be redundant have to be let go immediately to reduce the wage bill. Having a lean workforce that can multitask and be able to deliver more efficiently is important. The remaining staff to be trained on how to use the computer system in inventory control. Apart from restructuring, the stocked raw materials that are in the warehouse can be enough for the number of months mentioned. No new raw materials should then be ordered until about the time needed to free up warehouse space.
Computerization changes
The procurement computer system can be upgraded to serve more roles in controlling the procurement of all raw materials and keeping sales records. Currently, the warehouse is full to capacity, forcing the company to procure storage services elsewhere. Procurement can be systemized to be notifying management about the need for raw materials as, and when it is needed to reduce over-procuring to ease space at the warehouse eventually reducing costs of hiring more capacity for storage.
Benefits of e-commerce to DVS
E-commerce can benefit the company in three ways majorly. The company can be able to shop online by comparing prices of raw materials in the market from various sellers before making a buy decision. On making the decision the company will pay for the goods online. The system can also link with a logistics company that can be procured online free and tendered to deliver the goods to the company when needed. This will eliminate staff members who have employed specifically to procure a transporter. The company can also advertise the product on the company’s website and enable shoppers to place orders. After placing orders deliveries are made. This can also mean minimizing the over-dependence sales staff, therefore might mean no hiring in the foreseeable future.
Recommendation on the use of SKUs
I would strongly recommend the use of computers and e-commerce for all the 5000 SKUs purchased to track down the stock in order as peruse. The system by the computer will eliminate manual labor that has been used in the past to control the usage. The computer will in due course of time help to reduce unnecessary SKUs and bring it to manageable quantities and give management a cost-effective strategy to control costs. The warehouse is full and major costs saving can be realized when these unnecessary stock are brought down to small quantities able to serve the production for a foreseeable future.
Strategies for maintaining service levels
Sales have been somewhat growing in a trend that can simply be interpreted using the sales figures over the past 20 years. The business figures from the last twenty years can be an asset to use to predict future business growth in terms of sales. Using the sales figures for a foreseeable future will inform the number of raw materials needed to produce the amount of output that will make the sales. Then the company will order the raw materials according to needs. It can be divided into months to determine the need for raw materials each month.
The company will not need extra staff to do the analysis to come up with the figures. It can be done by computer software with one staff member inputting the figures for the computer to analyze or at an inventory control unit where when products are sold to the market the computer system can be storing daily sales which will be compiled at the end of the month, for example, to give a final tabulated report to be issued to the management to use to make informed decisions at a cost-effective manner. The system will be tabulating raw material as they are used in the factory flow when they are picked from the warehouse.