Fun Ltd., a Texas company, is an expert in the assembly of a variety of video games consoles and they also offer repair parts for these systems. The products range from small handheld consoles that focus on mobility to normal size consoles that focus on systems’ performances and players’ experiences.

In recent years, Fun Ltd has been in trouble. Sales of small handheld consoles has declined because of the popularity of smartphones. The company has lost money for three of the last four years, with the last year’s loss being $12,238 on sales of $1,624,354.

How do they control the inventory?

There are four warehouses. There is a central warehouse which is in the headquarters, and the three regional warehouses. Recently, regional sales managers complain frequently about poor customer service. There are managers reporting that some customer orders go unfilled or are late because of shortages at that regional warehouse. Other regional sale managers also report that there are products with low inventory turnover at their locations. These regional warehouse managers have responded by increasing their order sizes from the main warehouse and maintaining larger amounts of safety stock for products with higher chance of stocking out. This has resulted in increased inventory holding costs, but it hasn’t eliminated the problem.

In the headquarter, when one of stockroom worker, the Purchasing Manager, or the Manufacturing Manager observes a low inventory level, they can send an order for stock replenishment. An order for replenishment of inventory can be send whenever someone (either a customer or an employee in the assembly area) wants an item, and it is not in stock.

Some inventory is needed for the assembly of the small handheld consoles and normal size consoles. There are current and accurate bills of material for these assemblies. The materials needed to support the assembly schedule are generally known well in advance of the build schedule.

The majority of inventory transactions are for repair parts and supplies used by the mainboard of the handheld consoles and controller of normal size’s console. Players can drop handheld console by accident, while controller of normal size consoles is often overused.

The stockroom is well organized, with parts stored in locations according to each vendor. The number of vendors is relatively limited, with each vendor generally supplying many different parts. For example, the repair parts from Durable, a manufacturer of touch pad used in the controller, are stocked in the same location.

Because of the heavy sales volume of repair parts, there are generally two employees working in the stockroom – a stockroom worker (who reports to the Manufacturing Manager) and an Assistant (who reports to the stockroom worker). One of these two employees will handle customer orders. Many customers stop by to order the parts and supplies they need. Telephone orders are also received and are shipped by delivery services such as FedEx the same day.

The assembly area has some inventory stored on the shop floor. This inventory consists of low value items that are used every day, such as flex cable or button of the controller. These purchased items do not amount to a substantial dollar volume throughout the year. Unfortunately, sometimes these basic items are out of stocks, which causes a significant amount of downtime for the assembly lines.

The company has a minimum paperwork system. A sales slip listing the part numbers and quantities sold to a customer is generally made out for each sale. If the assembly department wants some items that are not available on the floor, someone will enter the stockroom and get the material. There is no paperwork made out for the items needed on the assembly floor.

There were 768 different part numbers purchased for stock last year and those purchases cost $321,461. Inventory records shows that $190,249 was spent on just 135 of the part numbers.

Fortunately for Fun Ltd, most of the items they purchase are stocked by either the manufacturer or by a wholesaler. When it is discovered that the company is out of stock on an item, it generally takes only two or three days to replenish the stock.

Due to the company’s recent losses, the bank and auditing firm are concerned about the company’s ability to continue in business. Recently, the company sold off excess vacant land adjoining its manufacturing facility to generate cash, in order to meet its financial obligations.

New CEO and President have been appointed this year. This President has identified many problem areas, one of which is improper inventory control. You, an expert, are invited to help the company. What do you think should be implemented?

Summarize the situation, and then present your arguments.