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Supply Chain Essay

2212 words - 9 pages

Introduction
Inventory serves as a useful purpose in the supply chain. Many supply chain managers say firms can help decrease the need for inventory by carefully managing factors that cause inventory levels to increase. Inventory can be defined as the result of imbalance between supply and demand. The term inventory drivers comes from the consequences of certain supply or demand characteristics, such as: product desirability, responsiveness, information, collaboration, and visibility (St. John, 2008). The four common inventory drivers are: 1) demand/ capacity mismatches; smoothing inventories 2) demand/ process volume mismatches; cycle stocks 3) demand/supply uncertainty; safety stocks and ...view middle of the document...

John, 2008). Pack mix can normally be managed in two ways. In most retailers they use a system called “break-pack”, this system is very costly but in the end inventory is able to reach the retailers in a more efficient manner. Another driver of inventory is merchandising requirements, which means how the presentation of merchandise can lead to excess inventory. Studies done have proved that pack mix and presentation can increase inventory by 15-25 percent (Chandra, 2008). Most of the time special events and promotions add to the overall problem because stores increase inventory and they have to decide when you push the inventory to ensure it sells. Finally, service levels are another important inventory driver. Many retailers are paying closer attention to the complex and dynamic level of demand. Retailers know that more product being flowed through stores and the more flexible it is can increase service levels at a much lower cost (Chandra, 2008). According to a leader in Supply Chain Management, most service levels are 95 percent, which means that the system must have the right amount of inventory to meet the forecast that fell short of actual demand all but 5 percent of the time (St. John, 2008). These drivers will appear at every stage of the supply chain, therefore, when you explain and define each driver it improves the process and helps with savings in the supply chain. When retailers manage these five inventory drivers it will reduce the impact on the levels of inventory that can impact a retailer.
Inventory Control Metrics
Inventory control performance metrics consists of six main types. Many retailers do not realize that buying unnecessary inventory costs a business money. Possible measures of inventory include lost sales, inventory turnover, cycle time, item fill rate, industry comparisons, and inventory accuracy. First of all, lost sales refers to the amount of merchandise customers seek but the retailer does not have in stock. In most cases this results in customers going elsewhere to purchase items because retailers don’t have the items in stock. The solution for this problem is back orders, which refers to the merchandise that retailers keep in stock for the previous week’s customer to buy. Using both of these metrics will help the retailer determine the gap between the level of inventory and the customer’s needs (Sherman, 2015). Furthermore, inventory turnover measures how fast the retailer sells and restocks the inventory. For retailers, the higher the inventory turnover the less time inventory will spend sitting on the shelves. The most effective way of measuring inventory turnover is by dividing the cost of sales over the value of average inventory, or you can calculate the number of days of supply you have on hand (Sherman, 2015). The first concern is how well inventory levels are being controlled, therefore, the most common measure is inventory turnover (Mapes, N/A). Next, cycle time is another performance measure...

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