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Questions
1. Prepare a summary of the risk management context for this project. You will
need to refer to the executive assessments and the briefing papers provided in
the previous section. There may be additional points that you feel need to be
added to the context, based on you experience.
Chang Lin is planning a risk management project into the final stages of opening
up the new BizOps enterprises retail outlet in the Grandville Mall to reduce level
of stock loss. it was estimated that there was an $11.3 million negative
discrepancy between stock records (purchases minus sales) and the outcome of
physical stock takes across the organization. These are aims of the project
Keep the right goods and materials that customers want and that business
needs
Stock goods that sell quickly
Keep the right amount of stock not too much, nor too little
3. Prepare a list of other people from the retail outlets who you would need to
consult with to ensure that all risks concerning stock losses have been identified.
For each person that you need to consult, provide a brief explanation of how you
feel their information may be of assistance in this project.
Stock manager: He will organize and monitor inventory levels to maximize
efficiency.
Stock clerks: He will take merchandise that has arrived, unpack merchandise
from the warehouse, check for damage or mislabelling, and get it where it needs
to be
a. Train staf about your security systems and your disciplinary policies and
procedures. Training about the cost of stock theft will help, as many people
aren't aware of the implications for company turnover and job security.
b. Set up procedures to prevent theft. Staf with financial responsibilities
should not be in charge of stock records.
c. Restrict access to warehouses, stockrooms and stationery cupboards.
d. Regularly change staf controlling stock to avoid collusion or bad practice.
If action is taken to dismiss an employee without conducting a proper
investigation or without valid evidence and subsequently, the employees
explanation is found to be reasonable, the employee may have grounds to take
action against the company.
Employers must inform employees of their rights before any interview. These
include the right to have a witness present and the right to remain silent. Also, if
the employee in question is a minor, ensure that an adult is present with the
employee at all times when conducting interviews.
5. Using the risk management procedures and the risk management plan
template, complete the following:
Document, analyse, categories and evaluate the risks that are associated
with this project.
Theft
Theft is one of the biggest risks with regard to inventory control,
specifically when the inventory is higher in value. If internal employees are
involved in the theft, it is much more difficult to identify as they know the
entire system and would probably be wise enough to erase all their tracks
after the theft.
Inventory Waste & Damage
Inventory usually tends to get damaged while being used in the normal
business processes. Damaged inventory cannot be used and goes to
waste, increasing the costs of the business. To avoid inventory from being
damaged and to reduce waste costs, companies create inventory control
policies to minimize the damage as much as possible as well as issue rules
and regulations regarding the efective use of inventory to prevent waste.
Inventory Loss
Inventory is a current asset to a firm. A loss of inventory means a
reduction in the company equity. Goods in the inventory can get lost if the
inventory is not managed properly or if the employees are not careful in
handling inventory.
Tracking
The most basic step in inventory control is maintaining a catalo of exactly
what a business has and where it is. All inventory locations should be
numbered and inventory items identified with those numbers. Tracking
systems should be in place.
Security
The reason that most businesses keep their inventory in a central location
is that this allows them to also keep it secure. Added measures such as
locks and security codes can help ensure that only certain trusted
personnel have access to inventory. All deliveries from suppliers require a
count before they go into inventory so that discrepancies between
deliveries and purchase orders are immediately remedied. Periodic counts
of small sections of inventory are conducted to pick up any discrepancies.
Review
Its important that a company maintain an up-to-date inventory. If supplies
and items are allowed to sit on shelves for too long they will lose value. It
is better to sell some items at a loss than allow them to sit any longer in
inventory. The storage space that is wasted on out-of-date inventory is a
loss in profits for a small business that could instead be using that space
for a faster selling product.
Audits
Periodic audits of bills of materials, negative balances in inventory and
scrap tracking will ofset inventory location errors, misallocation of raw
materials, over purchasing and overstatements of materials in inventory.
For example, if materials are taken from one warehouse, but mistakenly
recorded as taken from a second, the second warehouse may show a
negative inventory balance, triggering automatic over purchasing, when in
fact the materials are still in the second location.
Separate the risks and control measures into categories that can be
managed at either the retail outlet level by Grandeville retail managers or
at an organizational level by BizOps senior management.
Tracking: It could be managed by Grandeville retail managers as it should be
numbered and inventory items identified provided.
Review: It can be managed at either the retail outlet level by Grandeville retail
managers or at an organizational level by BizOps senior management but
primary review would be retail manager before passing to senior management.
Audits: Senior management will have to deal with external auditor to inspect all
inventory process
Develop treatment plans for risks that can be managed by the retail outlet
manager for the Grandeville store.
1. reducing the likelihood of the risk happening - for example, through quality
control processes, auditing, compliance with legislation, staf training,
regular maintenance or a change in procedures
2. reducing the impact if the risk occurs - for example, through emergency
procedures, of site data backup, minimising exposure to sources of risk, or
using public relations.
3. cross-training staf so that more than one person knows how to do a
certain task and you don't risk losing essential skills or knowledge if
something happens to one of your staf members
4. identifying alternative suppliers in case your usual supplier is unable to
deliver
5. keeping old equipment (after it is replaced) and practising doing things
manually in case your computer networks or other equipment can't be
used.
6. Prepare a review plan for the Grandville retail outlet manager to use to
determine the efectiveness of the risk treatment plan that you have developed.
This plan should contain the following components:
Inventory Turnover
It is a measure of the number of times inventory is sold and replaced in a
time period. This ratio is calculated by dividing Sales by Inventory. The
time period is typically a year, but can be shorter.
Inventory Write-Of
Inventory Write-Of represents inventory that no longer has any value in
the business (as opposed to write down, where the inventory value has
been reduced). Inventory could be written of due to technological
obsolesce, theft or damage. Inventory Write-of is simply the dollar value
of the stock to be written of