Telestar aims to continue pioneering the creation of new markets and conducting the business with integrity and quality. They constantly attempt to operate corporate activities based on a high standard of product and aim to maintain their market position despite economic low downs. The organisational mission is to be recognised as the market leader in the electronics trading field in specialist high technology, high reliability sectors in low and medium volumes to customers who are market leaders in their respective field. Based on the efforts of the Marketing, Purchasing, Finance, Research and Development, Manufacturing, Engineering and Sales departments, along with the elite group of innovative and enterprising spirits, Telestar aims at the ultimate goal to be a leading edge research and development oriented company of the industry, which will provide products and services of superior quality and value to customers.
THE PROBLEM
Stocks are vital to the successful functioning of an electronics trading organisation. It is the major investment, the most important profit source, and the chief problem of everyday control for a trade firm. Nowadays, businesses that buy and sell face tougher competition that presses their margin of profit. A marked decrease in sales as a recession transpired in Hong Kong after 1997 resulted to unsold stocks being in storage in the warehouses for more than three years and has become ‘dead stock’. The electronics trader also kept many different electronics parts to meet the market requirement, but some of them are not suitable for the target markets. This led to the main problem of increased holding costs and restricted cash flow. The problem could have been readily solved, but due to poor management information system within the company, which prevents Telestar from having an effective inventory management through reporting functions that give detailed and current information about quantities, prices, item movements and sales history, the root problem of having dead stocks is still not resolved.
The problem identified relates to three concepts of management: inventory management, with specific focus on stock control, information management and cash flow management. As identified above, Telestar apparently needs to better manage their inventory in stock in order to improve cash flow. Stocks are equivalent to money, as obviously, they took money to make. Telestar keeps dead stocks, thus money lying idle when it could be put to better use restricts the cash flow of the company. The lack of a systematic information management between the departments of Telestar contributes largely to worsening the problem that they are facing, as the excellent organisation of inventory data helps decision making processes regarding production easier and more accurate. Information flow from and to the different business units should, as a rule, be smooth to pave way for continuous and hassle-free conduct of business activities.
RESEARCH OBJECTIVES
1. To review existing literature regarding inventory management, with specific focus on stock control, information management and cash flow management;
2. To apply above review to the current situation at Telestar;
3. To conduct a structured interview of Telestar respondents and interpret the findings to come up with recommendations; and
4. To propose plans for reducing the ‘dead stocks’ at Telestar to reduce company costs, particularly handling costs and to subsequently improve the cash flow of Telestar
LITERATURE REVIEW
This literature review focuses on the three above-mentioned concepts of management, namely inventory management, with specific focus on stock control, information management and cash flow management. Materials from this review came from books, journals, magazines, newspapers, the Internet and other scholarly publications. Every effort will be made to incorporate relevant data from completed studies into the findings to be found in the latter part of the project report. Project participants will be informed that these studies have been reviewed and that redundant input will be kept to a minimum.
Inventory Management. All organisations keep inventory. According to (2003), inventory includes a company’s raw materials (used to produce partial products or completed goods), work in process (Items are considered to be work in process during the time the raw material is being converted into partial products, subassemblies, and finished products), supplies used in operations and finished goods (product ready for current customer sales) and is accompanied by costs which consists of money, space, labour (to receive, check quality, put away, retrieve, select, pack, ship and account for), deterioration, damage, obsolescence and theft.
Further according to inventory costs generally fall into ordering costs and holding costs (2003). Ordering, or acquisition costs, comes about regardless of the value of the goods. On the other hand, holding costs include the cost of capital tied up in inventory (the opportunity cost of money); storage costs such as rent; and costs of handling the product such as equipment, warehouse, and stock-keeping staff, stock losses, wastage, taxes and so on. In just-in-time (JIT) manufacturing environments, inventories are considered as waste. However, in an environment where an organisation suffers from poor cash flow or lack of strong control over electronic information transfer among all business departments and all significant suppliers, keeping an inventory is essential (Muller 2003). The business field has understood for sometime, at least in principle, that sound and careful inventory management is critical to a firm’s strategic viability but one of the most significant developments in the world economy over the last two decades have sharpened the field’s appreciation of that fact (2000). The key factors underlying the extraordinary success of Japanese companies in Western markets seems to be the ability of Japanese firms to operate with substantially lower inventories than their Western counterparts. Thus, inventory has become one of the dimensions upon which companies compete on a global scale.
The problems of inventory management, particularly stock control, are fundamentally alike, each involving some aspects of cost as mentioned above, service and usage. The objective in any given situation is to make that set of decisions which will minimise total costs and provide an acceptable–or economical–level of service at the expected demand or usage rate. The problem is solved on an item basis where it is required that the following information be determined–and continually reviewed–for each item: (1) appropriate costs; (2) expected service level–permissible incidence of stock shortages; (3) forecast of usage.; and (4) replenishment characteristics, e.g., lead time ( 1961). Stock control exists at a crossroad in the activities of a company. Many of the activities (operating efficiency, customer service, low inventory, purchase price reduction, etc.) depend on the correct level of stock being held, but the definition of the term ‘correct level’ varies dependent upon which activity is defining the stock.
According to (2002), stock control is definitely a balancing act between the conflicting requirements of the company and the prime reason for the development of inventory management is to resolve this conflict in the best interest of the business. A contemporary organisation has many sub-units, and each of them will have a particular view of the role stock control. Finance departments, for one, have a problem with stock because it consumes vast amounts of working capital and upsets the cash flow (Wild 2002). They would always argue for a minimum investment in stocks so that the funds can be used elsewhere for better purposes. One benefit of stock from a financial standpoint is that provisions can be made in case the stocks turn out to be unsaleable, and this vale can be adjusted to modify the profit figure in times of good or bad financial results.
However, the existence of these stocks in the first place is detrimental to the firm’s finances. The development of stock control practice has been given impetus by the move toward total quality management (TQM) and JIT concepts. These have focused on the possibility that good management, particularly, is both desirable and profitable, and has brought into question all the attitudes of the different sub-units of a firm as views of stock control. Stock control is a dynamic activity which requires both communication skills and professional inventory techniques. Optimising the balance of stock has been slow and gradual, created by technology, financial need and competitive pressure (2002).
In an article edited by , it was stated that to maintain an in-stock position of wanted items and to dispose of unwanted items, it is necessary to establish adequate controls over inventory on order and inventory in stock. There are several proven methods for inventory control, it noted. They are, from simplest to most complex: (1) visual control, which enables the manager to examine the inventory visually to determine if additional inventory is required. In very small businesses where this method is used, records may not be needed at all or only for slow moving or expensive items; (2) tickler control, which enables the manager to physically count a small portion of the inventory each day so that each segment of the inventory is counted every so many days on a regular basis; (3) click sheet control that enables the manager to record the item as it is used on a sheet of paper. Such information is then used for reorder purposes; (4) point-of-sale terminals that relay information on each item used or sold. The manager receives information printouts at regular intervals for review and action; and (5) off-line point-of-sale terminals relay information directly to the supplier’s computer who uses the information to ship additional items automatically to the buyer/inventory manager.
article stated that the final method for inventory control is done by an outside agency. A manufacturer’s representative visits the large retailer on a scheduled basis, takes the stock count and writes the reorder. Unwanted merchandise is removed from stock and returned to the manufacturer through a predetermined, authorized procedure. A principal goal for many of the methods described above is to determine the minimum possible annual cost of ordering and stocking each item. Two major control values are used: 1) the order quantity, that is, the size and frequency of orders; and 2) the reorder point, that is, the minimum stock level at which additional quantities are ordered.
The above review of literature is a combination of the basic concepts of inventory management, stock control and some suggested stock control techniques by authors. A knowledge of the above literature would pave the way for better understanding of the problem that Telestar is facing, which would lead to a better formulation of the project plan, to be carried out in the firm. The review helped reveal the project study in a historical and associational perspective and in relation to earlier and more primitive attacks on the same problem. More importantly, it provided new ideas and approaches that have occurred to the author at the start of this project.
Information Management. The system for managing information has always been closely linked with stock control, as the latter, in order to be carried out effectively and efficiently, needs the accurate storage, easy retrieval and uncomplicated dissemination to members of the organisation who needs information regarding stock control. An enormous amount of data is required to run a business and, once the data exist, using the data elsewhere is relatively easy. According to (2003), a short list of data sources would include access to production planning, inventory management information, quality assurance measurements, schedule revisions, material location, engineering change-order management, production variances and statistical process control. With everyone concerned with inventory working with consistent, current and synchronised information, contingencies can now be effectively managed.
Managing business information evolution and maintenance is a major variant of the more general process of managing information evolution and maintenance, or of managing information and communication technologies and their use (2005). The changes to leaner business over the last few years have necessitated major improvements in efficiency, leading to better communication and low inventories with requirement for more timely and more accurate data. Wild (2002) observed that businesses are striving for better quality in all products, and processes and inaccuracies can no longer be hidden by extra stockholding, an area where continuous improvements must be made and standards increased. Gradually, systems have become more integrated, and the use of any piece of data is now more universal and automatic. Separate records for each inventory area have been melded together, so that in a supply chain, there may be a view of the many stages of supply (2002). These could be (and more often are) different companies at different locations. Each rely on data received from elsewhere to support the next stage in the supply chain, so there is little room for incorrect information if demand is to be satisfied effectively.
Having products that sit in stock, or those that this paper refers to as ‘dead stock’, means not only carrying unnecessary inventory costs, but also failing to get a timely return on the labour and machine capacity costs. According to (2004), through sharing information such as inventory and production scheduling, electronic manufacturing plants can juggle their production schedules to better manage and control their stocks, which would reflect in the firm’s bottom line as reduced cost. (2002) noted that the development of integrated logistic and manufacturing planning systems, including JIT, has to rely on large number of records to be correct. Real-time information from the many production facilities, most especially stock control, is largely underutilised, and as the idea of collaboration within the production department gains adoption, the need for truly accurate, reliable information will be the key (2003).
Cash Flow Management. Cash flow is simply the money going into a business and out again–cash on hand and/or in a business account that’s used to pay company bills, salaries, and other expenses. Companies that are cash flow negative are simply spending more than their revenues bring in (2002). Cash flow may be viewed as the lifeblood of a corporation and the essence of its very existence (1995). Numerous empirical studies that use financial and accounting measures to predict business performance (i.e., success or failure) emphasize the importance of cash flow information in predicting bankrupt and non-bankrupt firms (1990; 1991). If sales vary during the year because of seasonality, growth, or uncertainty, then working capital is difficult to control. The firm’s current assets and liabilities (in particular, receivables, inventory, and short-term payables) change in response to sales fluctuations. As a result, cash flow may sometimes be inadequate to sustain operations, even though profitability is satisfactory over the whole year.
(1986) stated that evidence suggested that many firms are ill-equipped to make the difficult decisions involved in cash flow management. Poor financial control is a major factor contributing to the demise of many small firms. Inadequate financial control and a lack of cash flow and working capital analysis are often associated with financial difficulties. Perhaps the major danger is a belief by some owners that if profits are adequate, cash flow will take care of itself. A number of studies have found common deficiencies in the management of assets and liabilities, where it revealed inadequate control of receivables, payables, and inventory as well as cash receipts and disbursements.
The review revealed investigations similar to the author’s own, and showed how the collateral researchers handled these situations.
METHODOLOGY
This section of the report discusses the sampling design, or the population description and sampling selection, research design, or the internal validity of the report, including the threats and how the author dealt with them, data collection techniques, date analysis and limitations, or the methodological or implementation problems. This section also discusses the available means of gathering information for a project, more specifically, their advantages and disadvantages. Further on, the methodology presents the chosen strategies for obtaining the information needed for this project. When discussing different data collection techniques and their advantages and disadvantages, it becomes clear that they can complement each other. A skilful use of a combination of different techniques can reduce the chance of bias and will give a more comprehensive understanding of the project.
Sampling Design
The respondents for the actual interview were then selected. The respondents came from Telestar itself. The financial, purchasing, manufacturing and sales managers were interviewed. These respondents were selected through purposive sampling. Purposive sampling is a non-probability sampling technique where usually, there are one or more specific predefined groups, and this technique can be useful in situations where there is a need to reach a targeted sample quickly and where sampling for proportionality is not the primary concern; through this technique, one is likely to get the opinions of a target population (2002). The respondents were selected because of their extensive knowledge of the area of the subject that this project report touches on. This part of the study is important so as to gather the sufficient data needed for the fulfillment of the objectives of the project.
Research Design
This research requires an organised data gathering to answer the objectives. In this lieu, the research will use the descriptive approach employing a qualitative research method. A descriptive research is a type of study that tries to explore the cause of a particular phenomenon, present facts concerning the nature and status of a situation, as it exists at the time of the study, and portray an accurate profile of persons, events or situations (1994; 2002).
The approach undertaken for such type of study was chosen for a number of reasons. Because the descriptive approach is quick and flexible, three advantages arise: first, when new issues and questions arise during the duration of the study, this approach allows a further investigation; second, when there are unproductive areas from the original plan of the study, the researcher can drop them; and third, the approach is more practical in terms of time and money (1994). Finally, this type of study may serve as an extension or a forerunner to a piece of exploratory research, a valuable research approach employed to: discover what is happening; seek new insights; ask questions; and/or evaluate a phenomenon in a new light (2002). On the other hand, the qualitative research method is multi-method in focus and involves an interpretative, naturalistic approach to its subject matter (1993). In this lieu, qualitative researchers study things in their natural settings, attempting to make sense of, or interpret phenomena in terms of the meanings people bring to them (1993). In order to accomplish this, a wide range of interconnected methods are employed in the hope that a better fix on the subject matter will be achieved (1993).
Data Collection
Documenting Secondary Data. There is already a large amount of data that has already been collected by others on the subject of customer service, although it may not necessarily have been analysed or published. Locating these sources and retrieving the information is a good starting point in any data collection effort. (1989) noted that the advantage of using existing data is that collection is inexpensive and permits examination of trends over the past.
According to (1993), the use of secondary data is advantageous for a researcher since one can already evaluate the suitability of a data as it is already in existence, thus, much time can be saved. Needless to say, an evaluation of potential secondary data is very important before one incorporates it in his/her study. However, it is sometimes difficult to gain access to the records or reports required, and the data may not always be complete and precise enough, or too disorganised. Also, ethical issues about confidentiality can arise. Examples of tools used in this technique are checklist and data compilation forms.
Documenting secondary data, accordingly, are the ones often used in research projects that also use primary data collection data methods, although such data can also be used on their own or be combined with other secondary data. This type includes: written documents (notices, correspondence, minutes of meetings, reports to shareholders, diaries, transcripts of speeches, administrative and public records, as well as articles from books, journals, magazines and newspapers) that can be important raw data sources on their own right, a storage medium for compiled data, provide qualitative data, and can be used, as well, to generate statistical measures (e.g., data on absenteeism derived from company records); and, non-written documents (like tape and video recordings, pictures, drawings, films and television programmes, digital versatile disks and CD-ROMs) that can be analysed both quantitatively and qualitatively, as well be used to help triangulate findings based on other data such as written documents and primary data collected through observations, interviews and questionnaires (2003).
Observing. This is a technique that involves systematically selecting, watching and recording behaviour and characteristics of living beings, objects or phenomena ( 1990). This technique gives more detailed and context-related information, permits collection of information on facts not mentioned in an interview and allows tests of reliability of responses to questionnaires (1989). Observations of human behaviour form part of any customer service study, but as they are time consuming they are most often used only in small-scale studies. Also, ethical issues of confidentiality and privacy may arise, and the presence of the data collector may influence the situation being observed. Likewise, observer bias may also occur. The observer’s eyes and other senses, pen/paper, watch, scales, etc. are some of the tools utilised in observation.
Interviewing. This is a data-collection technique that involves oral questioning of respondents, either individually or as a group. Answers to the questions posed during an interview can be recorded by writing them down (either during the interview itself or immediately after the interview) or by tape-recording the responses, or by a combination of both. This technique permits clarification of questions and has a higher response rate than written questionnaires.
There are three types of interview: structured, semi-structured and in-depth. The structured interview, specifically, is the most common form of interview utilised by researchers. The interview strategy is a popular and common strategy in business projects because it allows the collection of a fairly large amount of data from a sizeable population in a highly economical way ( 2003). Accordingly, the survey strategy gives a researcher more control over the research process; however, the data collected by this strategy may not be as wide ranging as those collected by other research strategies. Also, reports of events may be less complete than information gained through observations. Structured interview guide, checklist, questionnaire, telephone and audio recorder are tools employed in interviewing.
In structured interviews, a researcher uses questionnaires based on a pre-determined and standardized or identical set of questions, which typically have pre-coded answers; herein, the researcher reads out each question and then record the response on a standardized schedule. (2003) said questionnaires collect data by asking people to respond to exactly the same set of questions, and they are often used as part of survey strategy to collect descriptive and explanatory data about opinions, behaviors and attributes, where data collected are normally coded and analyzed by computer. Accordingly, the choice of questionnaire is influenced by the research questions and objectives, as well as the resources, available, therefore, a researcher must know precisely, prior to designing a questionnaire, what data is needed to be collected in order to come up with answers that will address the research questions and objectives.
In addition, in designing a questionnaire, one should consider the wording of individual questions prior to order in which they appear, and the order and flow of questions should be logical to the respondents (2003). Structured interviews differ from semi-structured and in-depth interviews in the sense that herein, there is a defined schedule of questions from which interviewers should not deviate ( 2003). Accordingly, while there is social interaction between the researcher and his/her respondent (e.g., providing necessary explanations), the researcher must read out the questions in a tone of voice that is devoid of any bias (or may indicate as such).
Administering written questionnaires. A written questionnaire (also referred to as self-administered questionnaire) is a data collection tool in which written questions are presented that are to be answered by the respondents in written form. This strategy is employed mostly as a survey instrument. According to (1989), written questionnaire can be administered in different ways, such as by: sending questionnaires by mail with clear instructions on how to answer the questions and asking for mailed responses; gathering all or part of the respondents in one place at one time, giving oral or written instructions, and letting the respondents fill out the questionnaires; or hand-delivering questionnaires to respondents and collecting them later. The questions can be either open-ended or closed (with pre-categorised answers). This technique permits anonymity, thus potentially resulting in more honest answers. However, it has a lower rate of response than an interview and questions, and the respondents, when they aren’t given the chance to clarify the questions, could misunderstand them.
From the four most common data collection techniques discussed above, the author deemed that documenting secondary data and performing a structured interview will be the fittest strategies to employ in this project. As for the documentation of the secondary data in this study, the researcher adopted the three-stage process devised by (2003), whose first stage is assessing the overall suitability of data to research questions and objectives, involves paying particular attention to measurement validity (measuring / estimating whether the secondary data will result to a valid answer to the research questions and objectives) and coverage (this includes ensuring whether or not the data is wanted and can be included, as well as making sure that sufficient data remain for analyses to be undertaken once unwanted data have been excluded).
The second stage involved evaluating precisely the suitability of data for analyses needed to answer and meet the research questions and objectives. At this stage, the author made sure of the validity and reliability of the secondary data by assessing how it was previously gathered, who are its sources, and the likes. Also, the author was cautious not to commit measurement bias (which can occur due to deliberate distortion of data or changes in the way data are collected) had been paid close attention to. Finally, there is the judgement whether to use data based on an assessment of costs and benefits in comparison with alternative sources. Structured interviews are necessary for this research, because by conducting personal interviews on the selected respondents, their comments and reactions may be gathered regarding the project topic.
Documenting relevant secondary data involves two interlinked stages. The first stage is identifying whether or not the data that a researcher looks for are available as secondary data, while the second stage is finding the precise data that is needed for the study. ( 2003). For this study, the author was able to establish that the pertinent data needed for the fulfilment of this research’s objectives are available through the literature review previously conducted. Because of the review, the author was able to gather full references to the sources of the needed data. Tertiary literature (like indexes and data archive catalogues) also helped especially those on-line indexes and catalogues of Universities, organisations and Governments. After determining the availability of the data, the next step was to locate them. As a result, the author had gone to several libraries within the area of vicinity in order to locate the books, journals and magazines that are needed. Also, through the Internet, the author was able to gather the websites of numerous organisations and institutions that have provided the pertinent secondary data needed.
As for the structured interview, all respondents will be asked the same set of questions in the same way. The results will then be quantified and presented in numerical form. One advantage that the author saw is that it permits the estimation of how common certain beliefs are, that is, what percentage of respondents expresses them. For validation purposes, the author pre-tested a sample of the set questionnaires. This was done by conducting an initial structured interview to at least five respondents from Telestar Electronics Trading. After the respondents answered, the author then asked them to cite the parts of the questionnaire that needs improvement, also even asking for suggestions and corrections from the respondents to ensure that the questionnaire is effective. Automatically, these five respondents were not included as respondents for the next batch of interview. These data collection techniques were chosen for two reasons: first, these approaches are quick and will allow for a flexible approach, thus, when important new issues and questions arise during the duration of the project, a further investigation may be allowed; and second, with these types of approaches the author will be allowed to drop unproductive areas of research from the original plan of the study.
This questionnaire will comprise a set of attitude statements that intends to determine the level of agreement or disagreement using a five-point Likert scale. In the Likert technique, the degree of agreement or disagreement) is given a numerical value, e.g., a range from one to five, thus a total numerical value can be calculated from all the responses (2004). To assist the researcher in the statistical analysis of the gathered data, the Statistical Package for the Social Sciences (SPSS) was used. SPSS is one of the most widely available and powerful statistical software packages that covers a broad range of statistical procedures, which allows a researcher to summarize data (e.g., compute means and standard deviations), determine whether there are significant differences between groups (e.g., t-tests, analysis of variance), examine relationships among variables (e.g., correlation, multiple regression), and graph results (e.g., bar charts, line graphs) (Einstein & Abernethy 2000). For this research, the equivalent weights for the acquired answers were:
Range Interpretation
4.50 – 5.00 Excellent
3.50 – 3.49 Good
2.50 – 3.49 Fair
1.50 – 2.49 Poor
0.00 – 1.49 Bad
Data Analysis
In order to correctly interpret the data in such a way that its result will reflect what the study originally intends to show then the researcher must employ the correct and accurate way of data analysis. The method of data analysis then chosen for this study of correlation is through grouping the answers by category, then allowing them to be tabulated and analyzed through weighted mean. Tables may be used to present these findings in order to show the raw data tabulations and the percentage of people per category has chosen to answer the same. To interpret the data gathered, the author used the following statistical formula (1994):
Weighted Mean
f1x1 + f2x2 + f3x3 + f4x4 + f5x5
x= ———————————————
xt
where: f – weight given to each response
x – number of responses
xt – total number of responses
Limitations
Although this study provides insight into the stock control problem at Telestar, limitations of the study should be noted. The major limitation of this study is that the source of information, which is the survey, is limited, since the statements in the structured interview were preset by the researcher. The questions, therefore, were closed ended. Clearly, more research is needed to uncover other potential antecedents to stock control in an effort to better understand the workings and factors that affect it. The present research effort also has the limitation of generalizability, as the data were collected in a single company only, and the findings therefore cannot be said of other electronic trading companies in other regions or areas.
FINDINGS
This section presents the results of the structured interview that was conducted by the author to the financial, purchasing, manufacturing and sales managers. A copy of the actual structured interview would be found in the Appendix section. Prior to the initiation of the survey process, the purpose, the significance and objectives of the study were relayed to the participants. They were also assured that all the information they had provided are solely for the purpose of the study while their identities would remain confidential. All questions asked in the interview and structured questionnaire pertain only to the stock control procedures at Telestar Electronics Trading Ltd. A total of four structured interviews were conducted, the respondents being the managers of the financial, purchasing, manufacturing and sales departments. Each of the interviews lasted an approximate of ten minutes, including the asking of the comments from the said respondents.
For a clearer presentation, the findings of the survey are presented in a table. To facilitate for a continuous flow of discussion, the first part of the findings presented the computed interview results in a tabular form. The latter part will present the summary of the comments received from all the respondents regarding the stock control system of Telestar.
Table 1. Structured Interview Results
Items
5
4
3
2
1
Weighted Mean
Interpretation
1. Stock separation to different segments that allows for establishment of different standards of service
0
1
1
2
0
2.75
Fair
2. Stock control software as records-keeper
0
0
1
3
0
2.25
Poor
3. Internal documentations update
0
0
0
2
2
1.50
Poor
4. Stock room layout
0
0
0
3
1
1.75
Poor
5. Stock levels accurately recorded on store stock systems, according to policy
0
0
0
0
4
1.00
Bad
6. Stock rotation procedure
0
0
0
1
3
1.25
Bad
7. Checking of incoming stock and special orders
0
0
1
2
1
2.00
Poor
8. Checking of existing stocks and special orders
0
1
1
1
1
2.50
Fair
9. Information sharing and dissemination
0
0
1
2
1
2.00
Poor
10. Cash flow activity
0
0
3
1
0
2.75
Fair
The above table shows the perception of the respondents regarding the existing stock control system of their company. Taken summarily, they are not satisfied with the current stock control set-up of the firm, which will also reflect in the comments that they have stated, to be presented at the latter part of the findings. According to the four respondents, the status of their stock separation to different segments is doing fair, but definitely has room for improvement, evidenced by the weighted mean of 2.75, which is translated as fair in the Likert scale. The rest of the items have relatively the same answers as the first one, showing that the managers who were interviewed were generally unsatisfied with the handling of stock control procedures within the firm, resulting to the company’s big concern of ‘dead stocks’. Item 2 revealed that the stock control software as records-keeper is doing poorly, with a weighted mean of 2.25, which should be taken as expert opinions, because after all, they are the ones involved and mostly operating the software.
The update of internal documentations, according to the managers’ opinions, is not in tune with what is really needed by the company, as shown in the 1.50 weighted mean, translating to poor. The stock room lay out is perceived to be poor, as well, with a weighted mean of 1.75. Item number 5, or the accuracy of stock levels being recorded on store stock systems according to Telestar policy received the lowest score of the lot, with a weighted mean of 1, which means bad. The next item, the stock rotation procedure, got the same response. The next four items ranged from poor to fair, which says a lot about the stock item activities of the company, that which, is not performing satisfactorily.
In relation to the reviewed literature, the problem of ‘dead stocks’ of the organisation is relevant to the stock control procedures of a particular firm, how it is managed and carried out in the daily business context. Also, as shown in both the interview and the literature, handling stock or inventory information significantly and directly affects the company’s control over their stocks. To reiterate what (2000) observed, a sound and careful inventory management is critical to a firm’s strategic viability. The respondents, in agreement with (2002), implied that stock control is definitely a balancing act between the conflicting requirements of the company and the prime reason for the development of inventory management is to resolve this conflict in the best interest of the business. Also, the managers seemed to agree that to maintain an in-stock position of wanted items and to dispose of unwanted items, it is necessary to establish adequate controls over inventory on order and inventory in stock.
In the literature review, having products that sit in stock, or those that this paper refers to as ‘dead stock’, means not only carrying unnecessary inventory costs, but also failing to get a timely return on the labour and machine capacity costs. It is shown in the general agreement of the respondents that the cash flow activity of the firm, due to poor stock control, is restricted, thus coming only to a fair evaluation. (2004) claimed that through sharing information such as inventory and production scheduling, electronic manufacturing plants can juggle their production schedules to better manage and control their stocks, which would reflect in the firm’s bottom line as reduced cost. This is clearly not taking place within Telestar according to the perception of the respondents, coming up with a poor valuation. All in all, the literature review revealed the ideal activities and situations which the managers would have liked to implement within their organisation. As such, the following are the summary of their comments regarding the stock control procedure of the company:
Stock items that have been in inventory for at least 12 months are not reviewed, even at least annually for retention or elimination.
The justification for retention of stocks is vaguely stated in stock activity reports, as well and the purpose for which contingency items is being held.
Stock levels in excess of 60-months supply are still retained. The managers would have liked that the levels over the limit should be disposed of through normal excess procedures. Only when levels fall below the retention limit does the reorder cycle may resume.
The economic retention limit should be increased when the item is of special manufacture and relates to an end item of equipment that is expected to be in use beyond the economic retention time limit or costs incident to holding an additional quantity are insignificant and obsolescence or deterioration of the item is unlikely and the reasons for any increase or decrease to the economic retention limit be documented.
When discrepancies exist between records and material assets, action is not promptly taken to correct, determine the cause, and update balances as necessary.
CONCLUSIONS
From the above findings, the major points should be drawn, the status of the research question after data analysis be stated, the interpretations/conclusions that follow the findings be presented and major implications be drawn out. After an analysis of the structured interview results, the author finds that the managers are unsatisfied with how the stocks are controlled within their organisation. Drawing from their perceptions, it could be said that indeed, there is a problem with ‘dead stocks’ in Telestar and it is reflecting in the restricted cash flow and unnecessary handling costs, which the managers commented on. The inventory management as a whole, with particular emphasis on the stock control, is not serving the company the way it should have been. There is an absence of an effective and efficient system of keeping records within the firm, starting from the use of the stock control software, up to manual record-keeping activities, especially in the warehouse where the inventories are kept. The presence of uncalled for handling costs is significantly affecting the organisation’s cash flow as well. Where they could have better use of the cash allotted in other activities of the business, it is ‘sleeping’ in the warehouse in the form of ‘dead stocks’. The absence of a single system for managing stock inventories maintained within Telestar is one of the most obvious factors that aggravate the situation.
Stock inventory records maintained either at individual supply points which should be under a decentralized system or at one control location for all of the supply points as a centralized or consolidated system is not in existence, and various sets of records are still maintained, wherein they should have contained only adequate and current descriptive data that accurately reflect the status of each item. Perpetual inventory control systems are advised to use individual transaction entries for each action affecting an item and each increase and decrease to stock levels should be supported by an input or output document or comparable record, i.e., issue ticket, receiving report, or inventory adjustment voucher. A stock retention analysis showing the data needed to determine the economical retention limit or stockage criteria for an item is clearly lacking in their stock control system, which may be combined with the stock replenishment analysis and is to be published at least annually, to benefit the company. The warehouses do not perform a wall-to-wall physical inventory of all onsite stock locations when the contract for operation of that stock location expires, which should be otherwise. The purpose of this physical inventory is to ensure a reasonable level of accuracy of item records for the continuing requirement to maintain effective and efficient supply support. The physical inventory control record should therefore clearly indicate the record quantity, each count quantity, whether or not the count quantity constituted an error or variance, and the resolution of differing counts.
After analysis of the data, the research problem has been clearly defined in context, paving way for the formulation of the recommendations which will be later presented in the paper. The implications for the findings previously mentioned are grave for the status of the firm. In the field of electronics where the turnover of items is fast and continuous, Telestar should not have ‘dead stocks’ lying around in their warehouses. They should be devising ways to get rid of these stocks that are only detrimental to the company’s financial standing. Now that they have opened branches in other areas, they should be able to discover new markets in which to sell their stocks, even at a lower price, just to get it out of their hands and consequently reduce their handling costs, which will, in turn, improve their cash flow. The perception of the managers to the stock control system of Telestar also implies that there major improvements should be done in order to ensure that all locations are identified and all items in the warehouse are properly recorded prior to the inventory, a location validation shall be made prior to full lot and wall-to-wall inventories. To maintain a system of checks and balances, individuals such as warehouse and storage personnel should not be allowed to inventory materials under their custodial care and responsibility. If such a situation cannot be avoided, then the inventory count must be spot checked through random sample by an individual who does not have direct custodial responsibility.
RECOMMENDATIONS
Due to the findings and observations discussed above, the following are recommendations which the author deemed essential in reducing the ‘dead stocks’ at Telestar to reduce company costs, particularly handling costs and to subsequently improve the cash flow of Telestar:
Monitor inventory levels. A company’s profitability depends on the successful and timely sale of its products and services. Maintaining inventory levels at less than what is needed to support demand may result in lost sales and delays for customers. On the other hand, excess inventory places a burden on cash resources.
Compare inventory turnover with industry norms, and rely on historical sales data and forecasts to set inventory levels.
Stock sitting on shelves for long periods of time ties up money that could be used for other cash outflows. Sell off outdated, slow-moving merchandise.
Communicate and manage cash flow strategies. Be sure to inform staff members how they can contribute to improving cash flow and monitor their efforts. If cash is tight, consult with your CPA for more specific strategies on improving the company’s cash flow.
Additionally according to , the following actions can help save money when stocking inventory:
Substitution of less costly materials without impairing required quality.
Improvement in quality or changes in specifications that would lead to savings in process time or other operating savings.
Developing new sources of supply.
Greater use of bulk shipments.
Quantity savings due to large volume, through consideration of economic order quantity.
A reduction in unit prices due to negotiations.
Initiating make-or-buy studies.
Application of new purchasing techniques.
Using competition along with price, service and delivery when making the purchase selection decision.
Application of the recommendations shows that substantial improvements are possible with respect to both the cash flow and handling costs of Telestar Electronics Trading company. To conclude, it can be said that the proposals can be very easily implemented, and they are not more complex or work-consuming than the current methods. The redesign can be employed in a top-down fashion; and it does not entail organizational changes.
APPENDIX
Structured Interview Form
ITEMS
Excellent
(5)
Good
(4)
Fair
(3)
Poor
(2)
Bad
(1)
1. Stock separation to different segments that allows for establishment of different standards of service
2. Stock control software as records-keeper
3. Internal documentations update
4. Stock room layout
5. Stock levels accurately recorded on store stock systems, according to policy
6. Stock rotation procedure
7. Checking of incoming stock and special orders
8. Checking of existing stocks
9. Checking of special orders
10. Cash flow activity
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