Improving Inventory Management at Henry's Hardware
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Nguyễn QuỳnhImproving Inventory Management at Henry's Hardware
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Nguyễn Quỳnh- Problem 1: Inventory and Sales Process Improvement
Problem 1:
Henry’s Hardware is a small family business in Sacramento, California. The owners,
Henry and Kathleen, must use every square foot of store space as profitably as
possible. They have never kept detailed inventory or sales records. As soon as a
shipment of goods arrives, the items are immediately placed on store shelves. Invoices
from suppliers are only kept for tax purposes. When an item is sold, the item number
and price are rung up at the cash register. The owners use their own judgment in
identifying items that need to be reordered. What is the business impact of this
situation? How could information systems help Henry and Kathleen run their business?
What data should these systems capture? What decisions could the systems improve?
Solutions
❖ Current problem:
- Never keep data of inventory or sales.
- Do not have the standard process to order, receive and display products, just put the
products anywhere available
- Do not arrange a suitable area for each type of product (for example: Place high-
selling products near the door so we don't waste time picking up goods)
- Only tax purpose of Invoices
- Products on store shelves do not have clear, transparent prices.
- Use their own judgment in identifying items that need to be reordered.
❖ The impact of this situation:
- There is no purchase data of the previous periods to estimate the number of goods as well as the
amount of money to prepare for the next purchase → Unnecessary excess or lack of stocks in the
store.
- An incomplete purchasing process increases the likelihood of business problems.
- There will be a loss of capital when the business process is not strictly controlled.
- Owners' judgments may be wrong when determining items to reorder and may lead to
overstocks or shortages of items in the store.
- The growth of the business depends on the whole process related to suppliers and customers
(ordering/buying from suppliers → delivery products to our store → place products in-store →
sell for customers (delivery to customers). Therefore, if just one part of the process is not
controlled well, the growth of the business will be delayed.
❖ Information systems help Henry and Kathleen run their business by the
ways:
- Support business processes: ensure business processes are simplified and fully
operational.
- Store and analyze information: save information about the times of entering and selling
products and providing analysis to provide a comprehensive view for sellers to make
import decisions at different times.
- Data collection: The management information system collates inventory data to
balance stock and prevent out-of-stock situations. Also, the systems inform the
manager about the need for reordering, decide what we need to order, when we order,
how much to order,...
❖ The data that should be captured by these systems are as follows:
- Daily transaction of sales and purchases → analyze the demand of the product through
time, build a plan for each week/month/year (Aggregate planning). Set up Reorder point
planning based on Lead time, Safety stock, historical data about Demand.
- Number of goods stored in the store → Know detailed information (date, quantity, quality)
about the shipment being delivered from suppliers.
- Quantity of reorder level
- Invoices from suppliers. We should keep the whole information of the transaction, if
there is any dispute between the seller and buyer (do not pay money on time, detective
products..), invoices are important evidence.
- Consumer demand and supplier supply
❖ The system can improve decisions:
- Identify the transactions daily
- Decisions the quantity of Reorder Level (ROL) → When and what products to order?
- Determine Economic Order Quantity (EOQ) → How much to order?
- Determine the required demand to purchase items
- Help to balance the amount of inventory to meet customer needs without shortage or excess. →
Better forecasting, Increased profitability, Lower inventory, Customer retention.
❖ Suggestion for technology application:
- Use of a number of developments in information technology, particularly electronic
point of sale (EPOS) systems, (máy POS) which provides a much more accurate and
timely indication of stock replenishment requirements at shop level. A system where
electronic tills are used to process customer transactions in a retail outlet. Local EPOS
systems are usually connected to a central computer system, so that financial and
inventory-related data can be exchanged between the store and head office, allowing
automatic accounting and replenishment.
- The others: IoT Platform, Retail and wholesale sales management software for
distributors,.
Conclusion: Therefore, Management Information Systems are very important to
help businesses control the trading process and bring them the highest possible
profit. By implementing a suitable database management system or using an
online data warehouse, a company can run in a very efficient manner and can
balance the optimal quantity for transactions in their business.
Problem 2:
Find a description of a manager in a corporation in Business Week, Forbes, Fortune,
the Wall Street Journal, or another business publication, or do your research on the
web. Gather information about what the manager does and the role he or she plays in
the company. Identify the organizational level and business function where this
manager works. Make a list of the kinds of decisions this manager has to make and the
kind of information the manager would need for those decisions. Suggest how
information systems could supply this information.
Solutions
❖ Description of a manager in Coca-Cola:
- Ms. Cao Thi Hoang Vy, she has 22 years of working in Global businesses that are
very familiar to each of us, typically:
+ [4 years] Head of Procurement – Prudential Vietnam
+ [6 years] Vice President – Head of Procurement – HSBC Vietnam
+ [4 years] Regional Operations Manager - Coca-Cola Beverages Vietnam Limited
+ [8 years] Procurement Manager - Coca-Cola Beverages Vietnam Limited
❖ What she does are as follows:
She has to manage the procurement department to effectively work with stakeholders:
- Internal stakeholder:
+ Design engineering (R&D and engineer): She assists in designing and setting up
lines in the factory. When developing a product or a system, the procurement
manager must work with them to purchase machines to produce new products.
The purchasing manager can advise on raw material planning.
+ Production: She works with planners to purchase materials with the following
information: quantity and type, required date of materials. She also manages
services such as factory cleaning, maintenance,...
+ Sales and Marketing: She is to ensure lead time for sales products, ensure tools
for communication issues such as agreement on advertising positions,
stationery,... She also immediately transmits information regarding the price
increase to assess the impact of the price increase in the price estimate.
+ Finance: She must report financial projections for his purchasing activities, which
will involve money-intensive activities such as tenders, and must also be in regular
contact to see the company's budget to control the work by negotiating prices with
suppliers.
+ Human Resources: She must also make decisions that match the minimum cost of
her department. She will control each person's per capita salary and prove with
that salary how much work they will take.
- External stakeholder:
+ Procurement manager is always looking for new strategic suppliers to ensure
supply, price and quality.
+ Procurement must build relationships with suppliers, classifying suppliers to build
an effective relationship.
+ Negotiation:
● Price control between suppliers. For example, the cost of raw material is
increasing every year, but her business requires procurement to have a saving
cost of 3% per year. Managers have the ability to negotiate for both parties to
reach an agreement.
● Improve security of supply. During the Covid-19 pandemic situation, it was very
difficult for suppliers to produce, leading to a shortage of goods, so managers
must build a strategic relationship to give priority to their business.
+ Procurement manager adapts to market fluctuations to devise a purchasing
strategy for the future.
+ Procurement manager creates policies and procedures to manage and mitigate
risk
❖ The role she plays in the company:
- A procurement manager develops options that can help their organizations stay
competitive by finding supplier partners that strike a balance between quality and cost
- A procurement manager's responsibilities include reviewing past purchases made by
the company. This evaluation determines vendor effectiveness, compliance and
ultimately, the business’s return on investment
❖ The organizational level where she works: Management Level
❖ The business function: Manufacturing & Production
❖ Some kinds of decisions she has to make:
- Routine and Strategic Decisions
- Major and Minor Decisions
- Policy and Operation Decisions
- Organizational and Personal Decisions
❖ The kind of information she would need for those decisions:
- Production or services:
+ With Internal stakeholders:
● Type: Non-critical items, leverage items, bottleneck items, strategy items
● Quantity
● Quality
● Lead time
● Demand forecast
+ With external stakeholders:
● Sources
● Supplier capability
● Cost
● Kinds of transportation
● Delivery on cost
● Security of supply
● Supply risk profile
● Policy
● Market
● Expectation of supplier
- Other information: Budget of her company and Advantage/disadvantage of employee
❖ The information systems could supply this information:
- MANAGEMENT INFORMATION SYSTEMS
+ We define management information systems as the study of information systems
in business and management. The term management information systems (MIS)
also designates a specific category of information systems serving management-
level functions. Management information systems (MIS) serve the management
level of the organization, providing managers with reports and often online access
to the organization’s current performance and historical records. Typically, MIS are
oriented almost exclusively to internal, not environmental or external, events. MIS
primarily serves the functions of planning, controlling, and decision making at the
management level. Generally, they depend on underlying transaction processing
systems for their data.
+ MIS summarizes and reports on the company’s basic operations. The basic
transaction data from TPS are compressed and are usually presented in long
reports that are produced on a regular schedule. Figure below shows how a typical
MIS transforms transaction level data from inventory, production, and accounting
into MIS files that are used to provide managers with reports. Figure below shows
a sample report from this system.
- SYSTEM ANALYSIS PROGRAM DEVELOPMENT:
+ Traditional business models often decentralize data management, with each
business function storing its own operational data in a separate database. This
makes it difficult for employees from different business functions to access each
other’s information. Furthermore, duplication of data across multiple departments
increases IT storage costs and the risk of data errors.
+ By centralizing data management, SAP software provides multiple business
functions with a single view of the truth. This helps companies better manage
complex business processes by giving employees of different departments easy
access to real-time insights across the enterprise. As a result, businesses can
accelerate workflows, improve operational efficiency, raise productivity, enhance
customer experiences – and ultimately increase profits.
Common questions
Powered by AIHenry's Hardware faces business growth challenges like inefficient inventory management, dependence on judgment for ordering, and lack of structured processes. These lead to inconsistent stock levels and financial instability. Systematic improvements using technology include implementing a management information system to streamline inventory processes, track sales data, and set reorder points. Utilizing EPOS systems would enhance data accuracy, financial accounting, and inventory replenishment. These systems would address current inefficiencies and support scalable growth by providing reliable data for strategic decision-making .
Moving towards a data-driven decision-making model is critical for Henry's Hardware as it enables accurate demand forecasting, inventory optimization, and financial stability. This shift ensures decisions are based on objective data rather than subjective judgment, reducing errors in inventory management. Long-term benefits include improved customer satisfaction through better stock availability, enhanced operational efficiency, and strategic resource allocation. Data systems also facilitate growth planning and adaptability to market changes, securing profitability and competitive advantage .
Centralized data management through SAP software enhances cross-departmental communication by offering a single truth view, reducing data silos, and enabling real-time access to insights company-wide. This centralization improves operational efficiency, as departments can make informed decisions based on consistent data. It eliminates data duplication, minimizes storage costs, and reduces errors. This seamless information flow facilitates agile responses to market changes, accelerates workflows, and enhances productivity and customer experiences, ultimately driving profitability .
Not maintaining detailed sales and inventory records at Henry's Hardware results in potential overstock or stockouts, inefficient use of store space, and financial losses due to poor purchasing decisions. Information systems can mitigate these issues by collecting and analyzing sales and inventory data to provide insights into product demand over time. These systems can set reorder points based on lead time and safety stock levels, and help create a balanced inventory plan that avoids shortages or excess, thereby stabilizing financial operations .
Information systems can aid Henry and Kathleen by supporting business processes to ensure they are simplified and operational. They store and analyze information about product entry and sales, providing real-time data to manage inventory levels effectively. For instance, implementing management information systems can help identify replenishment needs, preventing out-of-stock situations by capturing data on sales transactions, reorder levels, and supplier invoices. This will improve decision-making by determining economic order quantities and optimize the reorder process, thereby enhancing forecasting, profitability, and customer retention .
Ms. Cao Thi Hoang Vy operates at the management level within the manufacturing and production function at Coca-Cola. Her role allows her to influence strategic decisions involving procurement strategies, supplier negotiations, and cost management. She plays a pivotal part in balancing quality and cost through strategic supplier partnerships and ensuring efficient resource allocation to maintain a competitive advantage in manufacturing operations .
A procurement manager like Ms. Cao Thi Hoang Vy is responsible for managing supply risks by ensuring a secure and efficient supply chain. She must maintain strategic relationships with suppliers, evaluate supplier capabilities, and monitor market conditions to devise future strategies. She requires information on supplier performance, market fluctuations, and demand forecasts to mitigate risks during events like supply shortages. Information systems can offer real-time insights into supplier delivery performance, cost fluctuations, and inventory levels to aid in creating robust risk management strategies .
EPOS systems offer an accurate and timely indication of stock replenishment requirements, which would benefit Henry's Hardware by automatically accounting and managing inventory data. These systems connect local sales transactions to a central computer system, facilitating real-time inventory tracking and financial data exchange. This connectivity ensures that the store can efficiently manage stock levels and streamline order placements, avoiding both overstock and stockouts .
Ms. Cao Thi Hoang Vy's approach to stakeholder management exemplifies integrating strategic supplier relationships with company goals by negotiating terms that balance cost and quality while maintaining security of supply. She collaborates with internal stakeholders to align supplier capabilities with production needs and adapts procurement strategies to market fluctuations. By developing strategic relationships, she ensures priority supply even during crises, thus aligning supplier partnerships with Coca-Cola's strategic objectives for cost control and market competitiveness .
Management Information Systems (MIS) transform transactional data into actionable insights by summarizing and reporting on a company's operations. MIS uses transactional data from inventory, production, and accounting systems, compressing it into reports that provide managers with current performance insights and historical records. This allows for informed decision-making regarding planning, controlling, and strategic management initiatives, as seen in Coca-Cola, where performance data helps optimize procurement and manufacturing processes .
