Organizational Purchasing Inventory Situation Read and analyze the case and answer these questions: 1. What specific actions should the company take in the

Organizational Purchasing Inventory Situation Read and analyze the case and answer these questions: 1. What specific actions should the company take in the area of inventory management? Support your recommendations with a well-reasoned argument. (33 points) 2. What impact will the 20 percent increase in production requirements likely have on the company’s inventory? (33 points) 3. How could AWP benefit from the establishment of an inventory management system? What functions should be included in an inventory control system? (34 points) Please make sure that you fully answer these questions. You may use the book and other sources to help you with the answers but you must cite your sources. At Wood Products
been prepared, the workers usually take the necessary items without bothering to
record the withdrawals. Approximately 63 percent of the kits are available for the
workers. All workers are required to return the remnants from their kits of materi-
als before the end of the shift.
THE DECISION
At a recent management meeting, the president announced that the production
levels would increase by 20 percent during the next month. Dave was anxious to
resolve his production problems.
Case 6
Austin Wood Products
Dave Popsplant manager for the doors and melding department at Austin Wood
Products (AWP), was very concerned about the company’slumber stockroom op
eration There is no way to know what is available belore you get to the storage
area. There is usually a 50 percent chance of obtaining the needed lumber for job
The stockroom situation is interfering with productivity
COMPANY BACKGROUND
Austin Wood Products was started in 1987 by Michael Pricesce gure 6.1). With
the fast growing building Industry in Texas, he realized the need for custom
manufactured doors. He began manufacturing doors in his garage up until 1982
when he moved to the facility in Belton. As the company began to grow. Price re
located to downtown Austin in 1983, and then to the present location, 1165
Guadalupe Road in Austin. The current facility has over 90,000 square feet of pro-
duction, warehouse, and showroom space, and employs 130 people. The produc
tion process is shown in Figure C62. The 7,000-square-foot showroom displays
their vast selection of quality handcrafted and manufactured products, which in
clude a complete line of doors, molding, decorative hardware, and entry systems.
They are the only company in Austin that builds custom doors
AWP’s primary customer base is composed of custom builders in Austin,
Dallas, Houston, and Fort Worth. AWP has tveir sales staff for in-stock and special
orders, and a fleet of delivery trucks that deliver within a 50-mile radius of Austin
They also make regularly scheduled visits to the Dallas-Fort Worth area and
Houston
The authors appreciation to Albon Budner, Maya Dewi. and Seth Gernot for the contribution
to the same and data have been dinged Copyright 2005 W. Berton All rights reserved
FIGURE C6.1 Organizational Cuart
Presiden
M Price
halo
VF
Human resou
ve
Sales
VP
Production
VP.
Marketing
VP
VP
Acounting
Purchasing
agent
Mani
MAAR
Central
????
Melding
supervisor
Do
prvi
463
6 A Won Prada
C6.2 Process Flowchart
Customers
“ppliers
Marketing
Master
scheduling
Manufacture
Assemble
Warehouse
operation
Row
torials
Component-
part
inventories
Finished goods
inventories
nleries
COMPETITIVE PRIORITIES
AWP products compete on a high level of service and the idea that they are very
flexible. If it can be made of wood, then they will produce it. Plant manager Dave
Pope prides himself on the fact that a customer can ask them for anything and he
or she will receive it. For example, a customer last year asked them for three in-
sulated redwood doors. Not only did Dave know what these doors were, but he
has a regular supplier that would send the material promptly. It would utterly be
impossible to walk into a large home improvement store and find anyone with
the knowledge or resources to fit such an order. In addition to custom-made
doors, AWP can make any type of wood molding. For about $300, anyone can
have special knives made to make custom molding to fit the décor of his or her
house.
AWP feels that along with this “anything for the customer” attitude is an excep
tional sales and service staff. They have their own in-house sales staff that can as
sist customers in choosing the products they need. They also provide delivery for
their products, this can lead to shorter lead times and more reliable shipment
when everything inside the plant is running smoothly.
To ensure that the customers have everything they need with their doors, AWP
sells a large amount of hardware with their doors. They stock many items from
hinges to locks, all that a contractor or customer would need to install their door.
AWP knows from experience that the quicker the door is sent and installed, the less
likely it is to be damaged and sent back to the factory. No company wants returns, so
they do all they can to ensure that their product is sent and installed correctly.
AWP is also very innovative when it comes to how they make their molding and
what kinds of doors they can produce. Five years ago, they purchased a new mold-
ing machine that allowed them to make an unlimited number of varieties of molding.
These new machines could make a larger style of molding, and the cutting knives
could be custom cut to fulfill the customers’ needs. The workers were sent to Florida
to be trained on how to use and maintain the new machines. This may be looked
upon as an unnecessary cost to some manufacturers, but AWP wanted to provide the
customers with the opportunity to have individualized custom molding.
The peak manufacturing period is from February to November. The highly sea-
sonal and cyclical product line is closely tied to the construction industry in Texas
CA
During this time, the company operates a 10w-hour shift for four days per week
Monday through Thursday. Each production worker is paid for 10 hours. The 120
production workers are paid, on the average $16.35 per hour Fringe benefits are
about 30 percent
AWP also installs the glass in the doors as they are being manufactured a lot of
other companies do not do this. In fact, other door manufacturers will have subcon
tractors install the glass in the field. Mr. Pope stated that the manufacturer cannot
control the quality and workmanship that subcontractors do. AWP sends their
doors with the glass so that others will not damage AWP’s high quality doors
CURRENT INVENTORY SITUATION
AWP currently does not have a formal inventory management system for the raw
materials and finished goods that they maintain in their warehouse. AWP con
ducts a complete inventory of raw materials and finished goods once each year. It
requires 47 workers to count the items. The inventory count takes two days to
complete, from seven o’clock in the morning to five o’clock in the evening. After
speaking with the plant manager, Dave Pope, it has become clear to Dave that
AWP does not place a heavy emphasis on maintaining accurate inventory
records. The president, Mr. Price, believes that since AWP is the only custom-door
manufacturer in the city of Austin, they do not need to compete on costs, there
fore, there is no heavy concern about reducing inventory costs. The 2008 sales rev-
enues were $25,000,000. The average price per door assembly ranged from $450
to $1,250.
A second reason not to worry about the lumber stockroom is based on the na-
ture of the demand. According to the vice president of production, Mary Smith,
the demand for the different types of wood varies from one year to the next. Since
approximately 95 percent of their sales come from custom orders, it is difficult for
AWP to predict what styles and types of wood will be in demand for
year. Custom order sales depend on the trends and preferences of the market. This
factor makes it difficult for AWP to predict which types of wood to maintain in
stock on a consistent basis and which ones to special order. Inventory turnover is
the most important measure of inventory performance because it relates inventory
levels to the product’s sales volume. Mary Smith estimates that inventory was
turned one and three-quarter times each year.
any given
LUMBER PURCHASING
Lumber purchases represent 87 percent of all purchases and dollar value; fasten-
ers, hinges, and miscellaneous materials represent the remaining 13 percent of an-
nual purchases. Wood is purchased based on discounts, deals, and rebates that are
offered by lumber yards. As orders are received, the wood is then allocated to the
various orders. The estimated value of the wood inventory is approximately
$3.5 million
A TYPICAL DAY’S OPERATION
The production shift begins at 7:00 a.m. Those workers needing lumber at this time
request permission to pick up lumber from the lumber store. In most cases, the
lumber and other items have been kitted for the specific job catalog. If no kits have

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