In order to reach such a status, manufacturing divisions must meet a series of requirements of OEM customers.
This means that manufacturing divisions must provide high quality products and services, the prices must be established in accordance with the products' quality, with customers' possibilities, and with the prices practiced by the company's competitors.
The manufacturing divisions are organized as profit centers, which means they are allowed to develop and implemented their own customer and sales strategy, with the condition of aligning these strategies with the general strategy of the company. It is more profitable for them to address the needs of OEM customers sometimes in the detriment of AM Manufacturing.
It is the top management's decision to not allow AM Marketing to sell other companies' products. Therefore, if the top management decides that the manufacturing divisions are discriminating AM Manufacturing, the managers can change the situation by allowing the division to sell certain products of other companies, based on a series of conditions agreed by the company and by AM Manufacturing.
Another issue that the company's top management must address is represented by the inventory situation. Given the fact that inventories within the company are considered to be excessive by the controller, it seems that the company is not able to develop and implement a suitable inventory strategy.
It is not defective inventory management if the divisions conduct excessive inventory. This is because this way, the divisions guarantee that their stocks are in accordance with customers' demands. Even so, the fact that these divisions conduct inventories that often, denotes inefficiency regarding inventory management.
Such an inventory managements is based on demand.
This principle is represented by the fact that the amount of time spent on conducting the inventory on a category of products is used for the inventory of all other goods produced by the company. This means that products run outs will take place at the same time. This helps reduce excess inventory. The financial resources resulted from this cost reduction can be reallocated in other areas.
However, it is not easy for managers to develop and implement such an inventory management system. This inventory system is based on demand forecasting. Inventory management should integrate demand forecasting within its activities. However, it is required that the demand forecasting is an accurate one, in order to minimize inventory.
Also, it is recommended that the company's top managers focus their strategy on the Just in Time method. This method is well-known for the fact that it helps reduce costs. If the company's top managers use this method when developing and implementing the inventory management system, the company will be able to determine the sales that the company can rely on. This way, the company's inventory management system is intended to increase its efficiency and to help the company improve its sales situation.
Reference list:
1. Neighbour, J. (2010). Transfer Pricing: Keeping It at Arm's Length. OECD Observer. Retrieved September 21, 2010 from http://www.oecdobserver.org/news/fullstory.php/aid/670/Transfer_pricing:_Keeping_it_at_arms_length.html.
