For example, Mavis will be able to provide white linen assortments in the Miami, Florida area while eliminating the offering altogether in its Gainesville, Florida store. This allows the strategy to mitigate gaps in communication or overall service. Finally, the Bullwhip effect leads to many financial costs which are both tangible and intangible (Mason-Jones, 2000). Those in the supply chain must deal with the ramifications of poor customer service, lack of productivity, and missing parts due to stock outs (Anand, 2006). Moreover the hiring and dismissals of employees can result in losses due to inadequate methods of inventory management.There are however, methods by which the inventory concerns can be mitigated. The localization strategy mentioned above does a good job of abating this influence. Inventory management procedures such as vendor management inventory and "just in time" replenishment help abate the consequences of inventory management procedures as well (Lewis, 2006).
Vendor Management Inventory
To supplement the potential negatives of inventory management alone, the company also engages in vendor management. Vendor managed inventory is a valid method to reduce these variations of inventory management while also being more responsive to consumer demands. Much the like the inventory management system, VMI is a collaborative management system that allows both the retailer and the supplier to better coordinate inventory levels through information sharing. VMI mitigates the potential damage incurred through misinformation and lost productivity within the inventory management process. In addition, vendor representatives, who do not work for Mavis, are used within the store ensure that the overall product line is displayed correctly for consumer demand. This approach, allows the vendor to be on the front lines to adequately see consumer demand. This allows stock levels to more adequately reflect demand as consumers can easily pinpoint displays and merchandise. Employees will also be better educated as to the benefits of the product line through the use of vendors on the selling floor. Another major component of the VMI is the risk that is shared within the entire system. One entity alone will not bear the entire risk of the system but instead, share some of the risks involved. For example, if a particular product thought to be in high demand, does not sell, the supplier will repurchase the product from the retailer to mitigate loss. In other cases, the product may be in the possession of the retailer but is not owned by the retailer until the sale takes place to mitigate the risk of the retailer itself. In this instance, the retailer acts simply as a warehousing agent, used to assists with the sale of the product in exchange for a predetermined commission. This creates a stable revenue stream for the retailer, while also encouraging the sale of the product from the supplier. This is to the benefit of the retailer who now has a more stable revenue stream and the vendor who has more control of displays within the retailer's location.
A critical input for the system involves macroeconomic forecasts and considerations. One economic issue prevailing in the United States is that of rapid fiscal and monetary stimulus and its inflation implications. This directly correlates to the inventory management process and procedures of Mavis as prices of commodities correspond to clothing prices. Due to prevailing market conditions, governments have embarked on a path to massive fiscal ease to help spur economic growth (David, 2009). These operations are designed to help build consumer confidence in the financial markets while also enhancing the overall appeal of risky asset classes such as stocks and real estate. For instance, the United States has kept interest rates near 0% for the past two years with an expectation of low interest rates until late 2015. This interest rate policy also discourages savings as little income can be garnered (Nicolas, 2012) as such; the theory suggests that consumers will spend money on products goods and services. This bodes well for Mavis as consumers now have incentive to spend more money on discretionary items as they can get very little through savings
These goods, particularly those in retail would then be purchased further stimulating the economy. These massive stimulus efforts however, have yet to enhance economic activity as previously anticipated. Consumers are still very cautious with purchasing. They are looking to trade down as they reduce debt and save more. As such, the massive asset purchases created by the government may result in rapid inflation as more currency is circulating in their respective economies. As governments continue to print money, the relative value of this money will continue to decline, ultimately harming the consumers it was intended to help (Krugman, 2009). Due primarily to this theory, inventory management, total quality management, and VMI will all become very important. As inflation takes hold and consumers continue to be cautious, it is very important to reduce waste and unnecessary expenses. As such, the strategies mentioned above will allow the company to continue to earn an adequate rate of retune while operating in an inflationary environment.
Furthermore, this low interest rate environment is harming those who depend on their savings to generate income. With interest rates at record lows, and savings accounts generating very little income, inflation will erode the purchasing power of these savings. As such, it is my contention that the government should reframe from massive amounts of stimulus as the threat to consumers is very large in regards to inflation (Robert, 1988). This has direct implications on the inventory management processes of Mavis. Consume demand and ability to purchase discretionary products decreases with inflation. As the value of the dollar decreases the ability for consumers to purchase more goods also decreases. To compensate, consumers would also need rising incomes. However, incomes have declined since 2000 (U.S. Census Bureau, 2005). As such, inventory management process must reflect the changing purchasing power of the dollar. If consumers are purchasing less, it is likely that inventory levels will increase due to lack of demand. This excess inventory will then be marked down to further entice consumer purchases. These markdowns put downward pressure on both profits and margins as it relates to underlying business activity. As such, inventory management processes must insure that adequate levels of inventory reflect anticipated demand. In addition, the inventory management process must insure that the goods and services being demanded are actually delivered.
Being a global brand, Mavi now has the opportunity to expand into overseas markets at a faster rate than competitors. The rising middle class of both India and China will become particularly attractive once Mavi becomes more established in its brand and quality image. In addition to this, manufacturing of Mavi product will also be cheaper as the company begins to operate in many low cost countries such as India and China. As Mavi begins to produce its products more cheaply, the company can enhance or maintain margins.
Finally, the threat to Mavi is the possibility of economic unrest resulting in a substantial reduction in the demand for clothing. Clothing is a discretionary purchase. As such, as economic conditions deteriorate so to will the demand for products. In a severe economic recession, the demand for Mavi's products will decline to a point where the company will no longer be able to sustain itself.
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