In early May of this year, a Kentucky man bought every last inventory item that a Kmart store had in Kentucky. Due to the store closing in only a couple of days, Rankin Paynter decided it would be best to buy everything the store had left and give it away to charity. He donated all items, from office supplies to clothing to Clark County Community Services. He was an unprivileged boy when he was younger only owning a pair of summer slippers as shoes. Now that he makes enough money to buy $200,000 worth of Kmart inventory, he is giving back to those in need.
With Kmart store not selling enough to make up for their cost of goods, they are being forced to close down several stores across the country. Their inventory is just sitting in the warehouse or backroom or even their front of the store without selling. Because Kmart still has debt to pay, they are forced to liquidate everything they have, starting with inventory, to pay off their heavy loans. The cost of holding inventory is higher than having just in time inventory like DELL is known to have started.
Even though there are several factors feeding into their decreasing sales, Kmart’s lack of efficient inventory management is costing them a lot more than just sales.
When compared to major corporations, small businesses have it rough. They don’t have the staff, resources, or logistical capabilities of larger companies. Imagine, then, the nightmare that so many small business owners awoke to after Hurricane Sandy devastated the East Coast. It’s for this reason that I’ve decided to discuss small businesses and the logistical difficulties they are facing after Hurricane Sandy – especially in regard to their supply chains. The following New York Times article is one of the few I found that exposed the grim reality so many small businesses will face in the coming months. Below is a synopsis.
A small business owner stands amongst the devastation caused by Hurricane Sandy. Click the image to be taken to the article.
The article begins with a story that perfectly illustrates the dire circumstances so many business owners found themselves in after Hurricane Sandy passed through the East Coast. Kristy Hadeka and Sean Tice – co-owners of Brooklyn Slate Company, a company that produces slate cheese boards – had been preparing for the holiday season when Sandy hit. As a small business, the company depends on the revenue generated during this time of the year. According to the article, holiday sales typically make up 75% of the company’s annual revenue. Instead, they found themselves dealing with a litany of other issues – a depleted staff, damaged inventory, halted UPS shipments, and even customer emails requesting arrival times for orders. Kristy and Sean even had to locate missing merchandise that was being transported to a Whole Foods store in Massachusetts.
Another small business, Linda the Bra Lady, had a similar experience. While the company did not experience any physical damage, co-founder Carl Manni explained that they did suffer financially as a result of the storm. Manni explained that due to damage sustained to several of his vendors’ warehouses, he was unable to procure the inventory he needed to fill online orders. He consequently had to back out of the orders – a decision that will cost him approximately $50,000 for this week alone.
Outside of lost inventory and stifled supply chains, the looming issue is that many of these business owners did not have insurance that covered a disaster of this nature. Consequently, many small businesses will have to file for bankruptcy if they do not receive disaster relief funds from the government.
Ultimately, I feel that small businesses have a much harder time dealing with catastrophes of this nature. Whereas large retailers can reroute their supply chain or reorganize resources to soften the punch Sandy packed, small businesses do not have the necessary resources to reroute orders or replace inventory – especially given the current state of the economy.
* The information provided in this post was drawn from the following New York Times article:
It’s that time of the year again Black Friday deals. I never understand why so many people sleep outside all night to get something that is limited to very low number like five or ten pieces and the person there whose number eleven just got nothing but waited all night in cold weather. Last year I decided to try and shop at midnight I went to Macy’s waited in line for about two hours and when we finally got into the store I honestly didn’t find any good deals so I think it was not worth it for me to wait in cold weather for noting. I just wanted to experience it and I did but I don’t think I would repeat it again. Well I found this interesting article that talks about opening as early as 8:00pm on Thursday this year that means Thanksgiving will be cut short for a lot of people. Wal-Mart was the first one to announce that they will be opening as early as 8:00pm this year. And this is when competitors come in to place Sears also announced they will open at 8:00pm. Now Wal-Mart has to worry about their competitors and what they are offering to beat their prices.
Wal-Mart also announced that they will have enough inventory from 10:00-11:00pm for customers to get the same deal as they would get in store online. Now inventory managing will be a big part of this they will have to make sure that inventory will remain available and the numbers of inventory are accurate so that no problems will occur with consumers. Wal-Mart has to make sure that their entire inventory will come on time with correct amount to avoid any problems. The best way to make sure inventory is accurate is to forecast their inventory and make sure the demand numbers are correct. Some customers are already unhappy because they will have to cut their Thanksgiving with family and friends early to go shopping so that’s why inventory has to be done correctly so that customers will be satisfied. But what happens to those poor employees who want to spend some quality time with their family and friends on Thanksgiving Day? Now they have to come to work early but will the quality of employees towards customers be the same? Of course not employees will be unhappy and quality will go down. This is where Wal-Mart and Sears need to work on quality management system so that they will make sure their employees are happy so that customers will be satisfied and happy also. So maybe paying them double on that day will make their employees happier. So opening early is good but Wal-Mart and Sears need to make sure that quality, and inventory is in good shape for customers to be happy and for them to make good profit.
Do you think opening early this year is a good idea? And will quality and inventory be in good shape or will there be a problem?
Last week, my family and I went to Red Lobster for dinner. I was struck at how efficient they were with everyone playing a different role in the restaurant. I noticed that after every order the servers would go to a computer section to input in the orders at the different tables. I have never given it much thought, but I realized then that that was how the restaurant uses to keep track of its inventories (food or drinks). My sister ordered a lobster, which she asked the server if she could pick it. This got me thinking that the restaurant needed to have an excellent inventory management system and supply chain in order to keep up with orders such as my little sister (you cannot have lobster fresh all year round–and live ones too). So what keep Red Lobster going?
Red lobster is one of the chains of the largest casual-dining company, Darden Restaurants Inc. (“Darden”), in the United States. In the article, the management team at Darden is working to continue its competitive advantage by implementing an automation system on the supply chain. I don’t know how extensive this system is, but Darden believes that the benefits will justify the cost for it. And I think they have a reason to be since they have been an innovator in its industry by having a competitive in its supply chain. The article also mentions that Darden has plans to open a lobster farm in Malaysia among its fish farms throughout the world. This would mean that the company would have more control on the quantity as well as the quality of the lobsters coming in to its restaurants. Furthermore, with the inventory management system at its restaurants, the company would be able to measure how much inventory (food like fishes or lobsters) to each location just as demanded.
Questions to consider: Have you ever been to one of Darden’s chain restaurants? How do you feel? Does the supply chain system that Darden has in place surprise you? How do you feel about Darden being the “McDonald’s” in casual dining? Does Darden have a comparative advantage over its competitors? How so?
As we all know, managing your inventory is one of the key parts in running a successful business. Having too much inventory is not good because inventory depreciates while it just sits on your shelves or in your warehouse. Having not enough inventory is also not a good thing because I don’t think there would be someone who is happy about waiting to buy what they want or need. So main question here would be how do you find that perfect balance?
To control your inventory in an efficient manner, you need to make sure that you do certain things. First of all, you need a good inventory control system without which your simply would not be able to fulfill your orders in an efficient manner. Also, you need make sure you do not have excess inventory, because it gets deducted from company’s bottom line and can lead to you losing money, so you need to make sure that you do not overstock. Another part would be to have a good inventory tracking system that would allow tracking the damaged product and preventing it from getting to a customer.
As an example I would like to share a recent personal experience that I had with PUMA. Few months ago Puma was having their end of the season sale offering 40%-50% off their clothes when you buy it online. As excited as I got, I bought two sweaters and two t-shirts. After a week I got my package with only one t-shirt inside. When I called their customer service I was told that the items that I purchased were out of stock therefore they will refund me my money for the items that I did not receive. It was very unpleasant news to me, but what was more unpleasant was after my phone call I went online and looked at the items that were available for sale, and both sweaters that I wanted and other shirt were still available; nowhere did it say that these items were out of stock. In my opinion, PUMA has a very poor inventory control system that allows them to sell things that simply do not have. Things like this could lead to bad customer relationship, because you just get discouraged when something like that happens.
On the other hand Apple’s inventory management is probably one of the best one out there. Most of the things that you order from Apple’s website come directly from their factory in China, so they do not have to waste money on inventory storage. They also have one of the best delivery systems and we have seen it recently with their iPad launch, when just a few days after announcing the product it was already available for sale, while other companies take weeks.
Has anyone had any similar experience that you can tie to inventory management? Or do you have any suggestions for PUMA to improve their inventory control?
All companies are responsible for some type of inventory management. The inventory turnover rate and amount of inventory simply varies by the company and its’ industry. Also, most companies have different ways of keeping track of their inventory and how often they do so.
In this tough economy, McDonald’s is one of the only restaurants that have strived in profitability and success. The company has been doing many things right in the past few years, including handling their inventory. This article compares McDonald’s inventory to Wendy’s, their biggest competitor.
Inventory in the food industry is much different than inventory in a clothing store, for example. McDonald’s, along with any other restaurant, cannot have food sticking around in the store for too long. This is due to the fact that the food can spoil and the last thing any restaurant owner wants is for a customer to become sick from their food. Also, McDonald’s does not want to waste money. Any ingredients in the store that are not being used before their expiration date are a lost cost to the business. These two factors make it very important for McDonald’s to correctly calculate how much inventory they should keep in the store at all times.
Between the years of 1999 and 2000, “McDonald’s had an inventory turnover rate of 96.15”. This is compared to Wendy’s inventory turnover rate of 40.073. This means that the average item at McDonald’s stayed in inventory for approximately four days before being sold. For Wendy’s, it took about ten days for a product to leave the shelves.
In this situation, McDonald’s inventory turnover rate was obviously better than Wendy’s. This means that it took less time for McDonald’s to turn a profit compared to their competitor. Also, it means that customers were getting fresher food than those who opted to visit Wendy’s.
With such a great inventory turnover rate, there is little that McDonald’s can do to improve in this department. However, in the years to come, it would not surprise me if the fast food giant set a new high standard.
It seems like just about every month Apple is coming out with some new gadget or upgrade to one of there previous products. Today Apple introduced the iPad Mini, which will be the first major extension int he companies line or products in over two years. The cost for this new device will start at $329 and will be available November 2nd or on presale this Friday.
The iPad mini apparently was a product that Steve Jobs had dismissed early on because he thought these smaller tablets were highly prone to failure in the market. But as other companies such as Google and Samsung have had their mini tablets fail Apple defends themselves by saying those products were just not what the consumer wanted. This time around Apple has taken the time to ensure its features were good enough for their customers.
Analysts at today’s meeting say that the release of the iPad mini will help maintain Apples momentum in the industry. Many analysts also predict that this products will become a key player in education and emerging markets such as China. With this being said Apple is already forecasting for a high demand for this product globally.
As we saw with the release of the iPhone 5, Apple needs to be able to manage their quality of their products and forecast accurately for the demand in this new product. Inventory management is going to be key as these new products are going to be demanded in stores and online to customers all over the world. It will be interesting to see the quality of this new device as well as how Apple keeps up with consumer demand.
Online shopping has caused retailers such as Macy’s, Best Buy, Sears and The Container Store to loose millions in sales. Consumers have had such a profound obsession with purchasing a product at the lowest price possible that almost every product sold at traditional retail stores is constantly being matched up with prices online. Currently, Best Buy is even going to the extent of customizing the bar codes on their products so they cannot be scanned by consumers so they are able to look up online prices from sites such as Amazon.
To avoid having in store sales reach an all time low, retailers are attempting to lure consumers into the store by promoting their own online operations on site. Walmart has made an effort to add Web return centers, pickup locations, free shipping outlets, payment booths, and drive-through customer service centers for online sales to appeal to the growing amount of online shoppers.
Retailers like Walmart believe that they could potentially have an advantage over their online retail competitors due to the fact that shopping offline eliminates the expensive shipping fees. Walmart gives customers a variety of options such as being able to order products from their online website and then being able to pick it up and pay for it at the store, thus appealing to customers who have a trend of preferring to pay cash for products.
From focusing on the cash option, Walmart has seen a dramatic rise in demand due to promoting online pickup at their stores, which now accounts for half their sales. As a whole, Walmart has the advantage of appealing to customers that do not have a bank account of credit cards. In addition, the in store pickup also appeals to consumers that favor to buy items in bulk that do not qualify for online purchases.
Fellow retailers of Walmart such as The Container Store and Sears have taken on site purchasing to a new level by promoting a drive-through service that allows for consumers to get what they need on the go. This service has also seen great success because it appeals to the consumers who shop online because they do not have the time to navigate their way through the retail store to purchase the products they need. Recently, a new trend has shown that customers who used this pick up service have caused them to visit 50% more than customers who regularly shop in the store.
The competition between traditional retailers and e-commerce companies will continue to exist, but the efforts made by the traditional retailers to keep up with online shopping have been greatly significant. With all the new bells and whistles added to their offline services, will retailers truly be able to take shopping offline for good?
In a time when pennies count, retailers are looking for any competitive advantage they can find. One way which is starting to make a comeback is the layaway program. By allowing customers the opportunity to put items on hold for a set number of weeks, it gives the consumer who may not be able to afford a purchase right now the opportunity to lock in their price. These programs have several different structures, some charge upfront fees at the beginning of the layaway period, and additionally some of which accrue interest charges.
This philosophy is nothing new in the retail world, but has seen a renaissance over the past few years, with many large retailers such as Sears, Kmart, and Toys ‘R Us pushing the programs. By offering layaway, retailers hope to boost early sales and beat their forecasts for the holiday season. Layaway does, however, have its downsides for companies since many have waived their service fees if consumers do not follow through with their purchase. This leaves merchandisers holding onto the extra inventory. Also with this new push to increase sales, retailers are adding many new items eligible for layaway. This move could prove to be both a positive and a negative. While on one hand it will bring in more shoppers to put things on layaway. If enough consumers do not follow through on their contracts and the stores took precious items off the sales floor, the results could prove costly.
By offering layaway financing through the stores themselves, it gives consumers who do not have, or might not want to use their credit cards. By allowing these consumers who might not have purchased the item otherwise to purchase from your company, it opens your profit potential that much more. Because it entails more planning on behalf of the merchandising crew, and all of the other aspects listed above, the decision on whether the layaway program is beneficial to each individual company is something that is up for debate.
Question: If you had a retail company, do you believe implementing a layaway program would be a good idea? What are some other benefits and consequences in addition to the ones mentioned that might come about due to a layaway program?
After researching inventory management more extensively, I came across an article that was based on a Q&A session with senior director, Meeta Kratz, at Grainger, an industrial supply company. Meeta says that she has noticed that more and more manufacturers are switching to “just in time” inventory to reduce extra costs associated with holding excess inventory. She says that this is an important shift because companies are now learning that switching to “just in time” inventory is allowing them to be more efficient with their inventory management systems and taking excess costs out completely out improving their profit.
While I understand the approach that “just in time” inventory helps to reduce costs associated with excess inventory if a company were to have good data to make good forecasts this problem would exist. The problem with “just in time” inventory is the need for a strong supply chain to make sure that you will receive the products just in time but on time. Failure to have strong suppliers will make a company’s customers unhappy due to their shortage or late shipments due to the original suppliers. This problem would be eliminated by taking the time to analyze the previous data and make accurate forecasts for future orders. Relying on “just in time” inventory, while can be effective” is risky if a company’s supply chain is weak and has no experience dealing with this kind of inventory system before.
When asked about the elements of a good inventory management system, Meeta responded, “Customer-centric, Based on actual usage data, Flexible, Supported by Experts.” These key elements simply cannot be achieved effectively with “just in time” inventory. If you want to be customer-centric you must be able to be flexible with your customers needs. Different customers may have different needs. The fact that actual usage data should be used in a good inventory management system shows that forecasting is essential to good inventory management. If you use data appropriately you can make sure you have enough products in stock at any time without extreme costs.
While I understand that some companies, such as Dell, have great success using “just in time” inventory I still believe that switching to this type of inventory puts a company at risk for not being able to supply their customers with the products they need and risk having shortages and losing customers. Looking at element four, “supported by experts,” this proves that if you have experts looking at your data and double checking forecasts then having “just in time” inventory is less effective and riskier than having a regular inventory replenished frequently.
Do you guys think “just in time” inventory is a good system to move to, just to reduce costs? What are the risks associated with it?
