Stock-out inventory management at Stone Horse Supply Company

Efficiency in the Supply Chain and Inventory Management

Explain the purpose of using stock-outs to control inventory 'Stock-outs' is a method aimed at reducing production flow times and response times from the company to consumers (Fleisch, & Tellkamp, 2005). Based on the name itself, this inventory control method holds that Stone Horse Supply Company will order products only if they are required for manufacturing or shipping. The company may order an item only a few dates back according to the delivery time specified by the supplier. This approach mandates that the company properly identify each item before the company requires it. Because the company might require many goods at the same time, they should properly identify each future requirement and timely produced.

What are the costs associated with using stock-outs?

The major cost associated with using stock-outs is coordination. Managing this inventory system requires significant coordination between the company and suppliers in their distribution network. Often, the company could trust its suppliers through synchronizing its technology systems with those of suppliers to supervise inventory levels directly. This serves to trigger an immediate response to low stock levels. Usually, this implies a build-up of technology infrastructure; this is costly (Fleisch, & Tellkamp, 2005).

What is the demand for stock-outs?

Controlling inventory levels ranks among the most hectic balancing activities for any business. If companies underestimate demand, they will naturally experience a glut of unproductive assets and resulting delays. Either way, this vexing issue could hurt a company's relationship with consumers and overall profitability. Business entities are seeking the stock-out technique to improve their inventory management capabilities. In fact, a recent KPMG's Global Manufacturing survey ranks "stock-outs" among the key elements, central to attaining operational priorities (Sachs, 2014). This system is argued to help forecast, monitor inventory and track order size

With the dynamic business field, businesses or all magnitude and industry have come to depend on stock-outs inventory management system. In fact, for entities that operate in sectors that feature high volume turnover of finished products and raw materials, stock-outs has emerged as a vital element of business strategies designed to maintain competitiveness and increase productivity. Besides, the apparent development of computer programs able to address a diversity of record keeping needs in a single integrated system has similarly contributed to the growing demand of stock-outs in inventory management.

Explain the importance of the level of product availability

The level of product availability is reflected by the order fill rate and its significance rests on the fact that it measures the degree of customer demand that is satisfied from available inventory. It is popularly referred to as "customer service level" (Sabbaghi & Vaidyanathan, 2010). John and Michael could use a high degree of product availability to enhance responsiveness and to draw consumers; however, this would need massive inventories and the associated costs. It is believed that an optimum level of product availability serves to maximize a company's profitability. The level of product availability remains the main industry issue with companies rating availability as the leading supply chain priority in the KPMG's Global Manufacturing survey. In the business field where grown is hard to find, improving the level of product availability continues to be a strong mechanism to retain customer loyalty and increase sales. Previously, many companies perceived that their influence stopped at the delivery point. KPMG's study indicates that this has changed as firms are taking increased ownership for improving the level of product availability. Some high-end businesses concentrate on a great level of product availability to concentrate on responsiveness. However, they charge higher prices than rivals do.

Factors that affect the optimal level of product availability

Price- this is the main factor that affects the optimal level of product availability to a greater extent. In fact, the price of an item is directly related to its optimal level of availability. An increase in the price of a product means that the supply will increase, and the reverse is true.

Technology- this is ranked among the main determinants of product availability. Advanced technology is said to increase the production or an item. In turn, this results in an increase in the supply of the item. For instance, the production of top-notch quality seeds increases the supply of crops. Further, this increases the availability of foods in the market (Fleisch, & Tellkamp, 2005).

Production costs- The price of inputs assumes a key role in the level of product availability. The lowest price at which John and Michael can sell an item without experiencing a loss is the sum of cash that it costs them to produce it. Delivering an item entails taking inputs and applying a procedure on them to get an output. The inputs are the raw materials (utilities and labor), and the output is the finished commodity. An increase in the price of inputs automatically increases the cost of production (Mu-ller & Diels, 2016). Therefore, at each price, John and Michael must sell their offerings for more money. Hence, if the price of inputs increases, there will be a decrease in the level of product availability. Similarly, a reduction in the cost of inputs generally spurs an increase in the level of product availability.

Research and discuss a company that has gone through times of growth and seen the effects of stock-outs

Inventory control of large corporations is stories that grab attention faster. This section features a case of inventory management failure and exposes the impacts of stock-outs. Insufficient demand forecasting remains the greatest challenge that companies today are confronting. The 2001 Nike's failure in its supply chain software serves as a warning story for firms pursuing the stock-outs method with inadequate resources. This company adopted a demand-planning software amidst inadequate testing. This was a crucial step for a business with such complex and global operations. Soon, the company witnessed an excess stock of low selling shoes and inadequate stock of the famous Air Jordan's. This mismatch directly led to a loss in sales of $100 million (Leung et al. 2016). Nike's failure derives from doing too much, too fast. When technology is executed correctly, it can be transformational to any business. Nevertheless, businesses tend to misuse technology to cut costs without considering the possible effect it could have on business processes.

Recommendations

Stock-outs is among the worst nightmares of any company. Not only do they result in low loyalty levels but also in lost sales and poor customer satisfaction. Often, shoppers feel disappointed when they meet an out-of-stock banner. However, this section recommends three solutions to John and Michael, of how not to sustain problems with stock-outs when dealing with an expansion.

Stock-outs is attributable to a misuse of technology within the supply chain; this leads to disappointed customers and out-of-stock sales. By having the proper inventory management system, John and Michael could make all the difference. An inventory management software that records all the business operations could help the company sustain problems with stock-outs.

John and Michael should consider Radio Frequency Identification (RFID). Today's business organizations are implementing a high-tech strategy as far as maintaining inventory accuracy is concerned. Today, many are using RFID; a technology that stores and tracks item information using a chip ingrained in a product's packaging or tag. RFID would enable John and Michael to monitor, count and search for items using a handled scanner. This would make it easier and faster for the company to track down the location of each item. Individuals manually counting products within the supply chain could consume too much time; this could be fraught with error besides being too costly. Therefore, RFID technology is rated as the top solution for inventory data inaccuracies (Leung et al. 2016).

John and Michael could have a solid inventory plan and excellent tools in place, but if they lack the right staff to execute them, they are predisposed to stock-outs issues. For example, John and Michael could have adequate stock in their company, but if the employees are not staying on top of replenishing the shelves, consumers could assume that the merchandise is not available. Therefore, the company must invest in employee training (Sachs, 2014). This means the staff must not only know how to operate the system, but they must be aware of what insights and data to take resolve. For this to be realized, John and Michael could collaborate with a technology company to offer training. Besides, investing in this human capital is not only about training them. The company needs to invest in their well-being, too. Happy employees are motivated, work harder and generate better outcomes; this is why the company must keep finding ways to empower them. The two investors must appreciate the fact that proper inventory management is the antecedent for success in their operations. With the adoption of the proposed systems, it will be possible to capitalize on the fast moving goods whereas the slow moving ones can be replaced. This will guarantee high revenue earnings and profitability.