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 in detail the ways to measure product availability
Bearing in mind the business case of stock-outs, John and Michael must endeavor to fulfill the demand by adjusting the availability of their items. Therefore, they must exercise care by measuring the availability of their products at the time of receiving orders without chances of fulfilling the demands later. Roland Berger Consultants (2003) recommend two major methods of measuring product availability: manual and POS estimation methods.
The manual approach is based on periodic checks of product categories (Sabbaghi & Vaidyanathan, 2010). Here, the primary task is to identify shelf gaps normally with the aid of hand-held scanners. This gap is described as a hole or an item that must have inventory on the shelf, but there is no inventory for the said item on the shelf visible for the buyer. The manual method dictates that John and Michael would calculate the stock-outs rate as the percentage of holes at the particular period.
POS estimation approach is based on the application of inventory data and POS sales. Here, the stock-outs rate is calculated as the number of times a consumer does not find an item on the shelf divided into the number of times a consumer finds the item plus the sum of times a consumer does not find it. As the manual method, this method has been set on the standards of estimating lost sales. Unlike the manual method, this approach reflects higher accuracy, automatic data and enables a possibility to focus on stock-out products that affect shoppers. Items that are most suited for this approach include those with low volatility and high inventory turnover.
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...
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…
