The decision has been made to accept the recommendation made recently by independent research which evaluated Kudler Fine Foods regarding the overall administration thereof. Findings indicate that the performance of the company will be greatly enhanced with the implementation of a separate operations team tasked with full control of the inventory and purchasing functions for all locations.
This proposal is designed to address major weaknesses within the organization as found by the study. An addition to the organizational structure will allow for an operations department to assume the duties currently handled by the founder, Kathy Kudler. The study revealed that the functions of purchasing and inventory could have negative consequences without a replacement of her duties. The potential exists that should an adverse event occur with Ms. Kudler, the organization would be crippled. A limitation exists with the organization's ability to meet the demands for expansion of internal operations in the event of the proposed addition of locations.
Analysis of the inventory control function found an inordinately large percentage of shrinkage. Estimates indicated that approximately 12% (Kudler, 2003) of her perishable goods represent shrinkage of the inventory and is removed from the shelves of the stores. Based on Kudler's reported cost of sales, this represents a loss to the organization of $835,000. Relating the gross profit margin to this amount, the lost profit attributable to this shrinkage is $375,000. (Kudler, 2003) A portion of this lost profit will be reclaimed from the implementation of an operations department tasked with the control of inventory and purchasing. The amount reclaimed will represent immediate financial profit and an amount to which any savings or improvement may be measured. Another major consideration is the freeing of Kathy Kudler from a majority of her travel between stores for the purpose of operational management and administration.