To Order or Not to Order?

Inventory management is something that does not sound that difficult to manage but it is one of the most crucial processes a business, whether small or big, needs to worry about. There has to be an optimum point where a firm can know when and how much to order. Many people think that they can order too much in advance and avoid shipping cost but this would be a bad decision for the business. What people do not realize is that sometimes the storage cost of the inventory far exceeds the shipping cost.

So what happens when a firm orders too little? The biggest problem most firms face is inadequate inventory to fulfill consumer demand. A big business can lose a huge order if they do not have inventory to fulfill the requirements where has a small business such as a small retail store can lose a customer if they do not have enough inventory. Economic Order Quantity helps businesses find the optimum level where they can order at the lowest cost.

This is extremely important because inventory is an asset on the balance sheets and also appears on the income statement. Like the professor said, it’s better to hold more assets in cash than in inventory. There have been many instances where I walked into a store and walked out disappointed just because what I wanted was not in stock. Some businesses can get affected by it but some don’t. For example, I walked into Dunkin Donuts and ordered an egg and cheese on a croissant but the employee told me they were out of croissants. It did not keep me from going there next time. On the other hand, a store that I went into for the first time did not have a size in a dress that I had liked. They were even out of the size for my second option. I remember that I did not go to that store again.

One company that I think would consider inventory management as one of their most crucial processes would be Wal-Mart. A store which has such a high turnover would need extremely efficient inventory management techniques. Wal-Mart follows JIT process because they do not like to hold inventory and like to avoid backorders. A company has to be quick and efficient to manage JIT effectively. I have never had inventory issues when I have walked into Wal-Mart.The link to an article below talks about their zero-tolerance policy on late shipments and their JIT process of inventory management.

Inventory management is extremely important and something we all should remember when or if we are running our own or even someone else’s business. Have you ever been disappointed because of poor inventory management?

19 thoughts on “To Order or Not to Order?

  1. This post is relevant because of how big and popular Wal-Mart is. I have never been disappointed by Wal-Mart’s inventory management and have always been able to find what I am looking for when I go in. Every company has to have good inventory management otherwise they could lose customers and business.

  2. I have been disapointed with inventory management failure. However, I believe that such failure starts at the very begining: Hiring and staffing a manager with no such real previous experience in inventory management prior to holding such position. As is true, staffing is part of an operational manager’s tasks.

  3. Yes I have been disappointed by poor inventory management, but I believe it does depend on how the managers handle it. For example, if Nordstrom was ever out of something, the store would ship it to you for free and apologize for the inconvenience. There are other stores that will just say they are getting a shipment in the next week and to try back later. For me it depends on the way the store values its customers, that will determine if I will be going back or not.

  4. This happens to me all the time! I go shopping, find something I really like, and then of course it’s out of stock. Even online I have come into problems where something is supposed to be in stock and then I get a message that actually, the company screwed up. It’s a huge inconvenience but I have to agree with Morgan that to make up for such a mistake, it’s beneficial for companies/managers to set-up a “plan B” in case one of their customers ends in a situation like this. I think managers have to be very detail-oriented to be able to keep track of sales and inventory but also have the skills to cope with inventory mistakes.

  5. I think you did a great job explaining this. I agree with you 100%, and strongly believe that inventory management is a crucial aspect of the business. Face it, stores are in existence because of the consumers. The only reason the consumer returns to any store is because they are confident they they will be able to find whatever it is they’re looking for, and that’s because of a good management team that oversees all inventory needs. I personally wouldn’t return to the same store if I wasn’t able to find something on a few different occasions. I’m the type of shopper who likes to walk in, grab what I need, and walk out. I don’t like going to four different stores to get six different things. I want one store where I can find it all, and it’s because they have a great variety and plenty of stock in their inventories.

  6. Like several others, I have also been disappointed with poor inventory management. I feel like unreliable inventory management is especially a problem during the holiday season. This is one of the most frustrating things that I have to deal with when I rarely go shopping. Successful companies are usually run by someone with a degree of skills in inventory management. However, I tend to shop at stores where I can find a suitable substitute for the item that they are out of.

  7. Inventory management is a very important! I work in retail and making sure that there is enough inventory for every week is extremely important. If there isn’t enough inventory in the stock room we end up missing out on a ton of sales and customers. There have been multiple occasions where we have been short basic stock and the situation is always frustrating. We do offer other options, such as, calling another store or seeing if the item is available in the warehouse, but sometimes those options don’t solve the problem. I think that inventory management should never be over looked.

  8. This reminds me of the example Professor Cook gave in class about the lazy cashier simply ringing up one yogurt cup and manually putting in that it was 10 of them, when really they were different flavors. Obviously in a setting such as a grocery store it may not be that big of a deal, but there have been times when I have been disappointed due to incorrect inventory reporting. For example, one time I went to a store and the computer system said they had the shirt in the color I wanted and the size I wanted, however it could not be found throughout the store, this could have been the result of theft or an employee’s mistake.

  9. I Totally like how you emphasized about the inventory problems that huge company face during inventory. I remember going to chipotle the other day and they ran out of lettuce. IT was 1:30 lunch time with so much traffic. I was thinking how could they run our of lettuce, i agree that inadequate inventory results into a loss for the business. I like the idea of the example of walmart, i wonder how they result to inadequate inventory.

  10. I would totally agree, great post! Inventory management is and very well may be the most crucial part of a business entity. As inventory is an asset of the balance sheet its good to maintain proper levels of inventory, its beneficial for both producer and consumer. Experiences with poor inventory services are things in which I have encountered before. I specifically remember thinking, how could such an entity have wrong levels of inventory. Although that’s where customer service comes into play i suppose.

  11. I am always disappointed at Jewel! I love Diamond Brand Glazed Pecans/Walnuts they sell at Jewel but I can never find the item when I go because they are always out of stock. Actually today, I went grocery shopping at Jewel and they finally had the item in stock. Inventory management is a crucial part of a business.

  12. A business’s running supply of inventory, in my opinion, is the quickest way to indicate what level of service they will offer you. If they are always stocked under all circumstances it is safe to say that it develops a level of trust with the consumer. On the other hand if there are periodic stockouts, it is hard to rely on this type of business and often deters customers leading to lost sales. One experience I had with a distributor was when ordering supplies for my restaurant, when ordering #6 brown bags they would continually bring #8 brown bags. #8 has slightly larder dimensions, cost is the same per unit, but it is a little harder to work with during busy times. This happening from time to time lead me to order all paper goods (cups, lids, bags, carryout containers) from a different supplier, cutting their regular delivery in half from what it used to be. The change from one distributor to the other ended up saving us money and now we have a more consistent product.

  13. I have been disappointed by retailers MANY times. I remember when I wanted this professional dress really badly for the first day on the job, it was hanging as a demo and everything. It wasn’t it my size and I couldn’t find one on the floor ANYWHERE I looked. I finally asked the manager working there and she’s like oh it is actually not suppose to be up. We are out of the dress. If management knew they were out of that dress they could have handled the inventory much better!

  14. I completely agree with all the points mentioned in the post above. I believe that we need to know our business first very well. Make a complete study, study the market, our customers, their needs and wants and then do a brief analysis. Results from these scenario analysis will show us the best method to choose for managing our inventory (i.e. whether JIT or EOQ).

    Moreover, the company shall always look at the customer first and meet his needs and then think about its performance. Losing a customer once because of lack of stock might affect the long run performance of the corporation. Keeping an inventory enough to meet the current demands would be the best thing and of course taking into consideration the storage cost. One more point worth to be motioned are the type of the inventory, which plays a great role and the methods of storing used for it.

    Lots of factors are involved and all theses need to be aligned.

  15. This happened to me many times but I’m still loyal to those retailers. Your explanation about inventory management was perfect, I highly agree with you in having EOQ or JIT will help businesses to find the ideal level of inventory at the lowest cost. Customer demand is the vehicle which runs the business if not satisfied the business will be affected. I was always satisfied when I walked into Carrefour especially the bakery because they maintain the JIT process of inventory management; they were quick and efficient at the same time.

  16. The way you explained the topic simplified the main idea behind the importance of inventory management. I would say that inventory management would differ across industries and type of business within each industry, healthcare industry for example; medication and drugs inventory management would differ between a pharmaceutical company and a hospital, in terms of minimum order level, when to place the order …etc. No hospital would want their patients walk away disappointed! That will then affect the service quality. Therefore; I agree that a proper inventory management is a must for the success of any organization.

  17. I totally agree that inventory management is difficult to manage, and that’s the reason why most business organizations have specific department for this process (inventory). Your writing is relevant to the real estate projects when site engineers should practice a proper inventory management system to complete the project on time, keeping on mind the storage issues and maintaining the quality standards. I experienced a poor inventory management in a construction site where the project manager was very cautious; he rapidly orders small quantities which absolutely raise the cost of the project.

  18. They need to do better forcasting or have better supply chains. I feel for large companies it would not be as bad if they are a little low becuase they would already have all the supply chains in placed however if they didnt it would be a huge problem for the company. Smaller companies today the low invetory would not probably hurt them becuase it would not be as dramatic because many supply companies have contract with business which allow for fast turn over.

  19. I think with the technology and the software nowadays, it is easier for the companies to track and manage their inventory by utilizing inventory management software. These inventory management software help the companies know their inventory so they can avoid overstocking or running out of products. Companies have tracking devices that keeps track what comes in and goes out by scanning the bar codes or RFID. Walmart is one of them. So I think by doing this and knowing the demand, the companies are doing better with inventory management.

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