Impact of Inventory on Businesses

The fourth week of class we had an in class activity, where each group was given a task of ordering inventories. We were provided with the last 2 years weekly demand of The Gaming Company, the first week beginning inventory of twenty weeks, the setup costs, inventory costs, shortage costs, and finally, each week’s demand. With our knowledge of the last 2 year demand, our group kind of predicted what the next twenty weeks demand would be. We know the ordering cost was fixed. We thought we could use that advantage to order for every four or five week’s inventories, so we can save on ordering costs. The less frequent we order the lesser the setup cost would be.  We also looked at the difference between the storage and shortage costs, and decided we rather prefer to hold the inventory because it is ten times cheaper than the shortage costs. We were doing well with this method until we messed up on our last order. We didn’t want to order again after this last ordering. Also, we did not want to take any chances of shortage so we ordered beyond the normal. This caused us dearly.

I am saying this to emphasis on how important every aspect of operation management is to businesses. Inventory management is a special aspect of every business, and proper attention should be assigned to it. This can make or destroy businesses. Inventory management look so simple to handle, but it can easily be messed up.  I know this because it happened to me when I was once in business. I was just ordering without any formula, and this led to the collapsed of my business. Over and under inventory have their own advantages and disadvantages, but I think the disadvantages outweigh the advantages. Inventory appears on the assets side of the balance sheet. This is used to calculate the current and quick ratios. These ratios are some of the things that help creditors, investors, and others to form their own opinion about a business. Businesses will like to have cash and receivables on their balance sheets than inventories because it speaks well of them. Inventory management deals with only two questions which are, “how much to order” and “when to order”.

Knowing the above will enable you calculate for your Economic Order Quantity (EOQ). You can also calculate your ordering costs, holding costs, unit cost, re-order level and lag time. Having all these information at hand will help you solve the problem of under and over inventories which is crucial to most business survival. Everyday hundreds of businesses are opened and closed. Do you think their closure is due to improper inventory management? After learning operations management this quarter, what advice will you give to business suffering from inventory management?

What you talkin’ about Willis?

In our class we talked about different operations management strategies to help businesses be more efficient and improve overall performance. Most of the concepts seem to be simple to implement and are common sense, thats why it is hard for me to belive that some managers and/or CEO’s can make such bad management decisions that they can destroy giants such as Goldblatts, Woolworth, and now Sears. Over the course of the last decade leading up to the failure of the now Sears Holdings Corporation, there are several factors that can account for the steep decline of this once retail superpower. Next to the obvious culprit, the economic downturn, there is also Sears’ failure to adapt to changing markets and its failure to modernize its marketing strategies. Since 2009, Sears has made significant changes to its marketing strategies in an effort to make up for lost ground but it may be too little too late. The economic recession has hurt the retail industry as a whole, but the negative effects have been even more devastating for the already struggling Sears. Edward Lampert, who purchased the company in 2004, was thought to have been the answer to Sears’ woes. But according to Zac Bissonnete, “[Lampert’s] rigid focus on financial metrics, while putting aside… branding and marketing” may have perpetuated Sears failure. Lampert’s move to merge Sears and Kmart was once hailed as genius but continuing declines in both stores have proved otherwise. Lampert may need to cut his losses with Kmart and focus on rebuilding Sears. As one analyst notes, “Turning around one troubled brand is tough. Turning around two in the same category is impossible.” Edward lampert was supposed to turn things around at Sears but either he is purposely driving Sears to the ground or he is really daft. Either way he could stand to take an Operations Management class at DePaul. Sears was once a store that differentiated itself from its competition by selling brands that were exclusive to its stores. But, in an effort to be more like its competitors, Sears changed its strategy, which hindered sales. In 2008, Jack Trout notes that “people went to Sears to buy Kenmore appliances, Craftsman tools, and DieHard batteries… In recent years though there hasn’t been much in the way of brand building coming out of Sears.” Now consumers can go to Wal-Mart, Home Depot, or online and get the same products for the same price, if not cheaper.
In the Washington Times article by Andrea Billups, customers speak fondly of the inexpensive, trendy clothing they were able to purchase at Sears. The article goes on to say, though, that this is not the general opinion of Sears. They claim that other brands like Target were more successful in making buying cheap chic by partnering with popular designers. One final problem Sears has faced is with the brand itself as a product. As mentioned earlier, Sears does not make an effort to keep its stores updated and the shopping experience itself is not special. At a time when competitors like Target and Wal-Mart work to make bargain shopping an experience, Sears has dropped the ball. Its sad that all it would have taken to save Sears is attention to its operations to keep the retail giant alive but now instead we are about to witness the disappearance of another great Chicago business and look at at skyline that features the Willis Tower.

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?

No chain is stronger than its weakest link!

Last period we discussed capacity and constraint management.  Capacity is defined as the ability to hold, receive, store, or accommodate.  In other words it is the maximum amount of work that an organization is capable of completing in a given amount of time.  Constraint is when a companies system is limited in achieving its goals by at least one constraint.  Managing both capacity and constraint will help the company identify the constraint and restructure the rest of the organization around it.  If there’s a discrepancy between the capacity of a company and the demands of its customer then it could result in inefficiency, either in under utilized resources or unfulfilled customers.  The goal of management is to minimize any discrepancies from occurring.

When trouble is on the horizon a strategic capacity plan takes formation.  This type of planning matches capacity with anticipated demand requirements.  Capacity can be increased through introducing new techniques and better utilization of existing capacity.  A companies goal is to achieve its optimal or effective capacity which is the capacity at which it expects to achieve given is operating constraints.  Now, theres a lot that is taken into consideration when assembling  a strategy to alleviate any discrepancies in the organizations strategy.  A company has to forecast accurately, understand its technology and find its optimum level of operation.

All things considered, there are a lot of companies that find themselves having discrepancies with their capacity and demand. One that quickly comes to mind are QSR’s.  They have to accurately measure their output versus their demand.  If they misjudge or miscalculate their capacity and constraints, it could cost them money in the short run.  Additionally, their establishment could create a perception of inadequacy to the customer and cost them even more in the long run.

There are many other examples of companies or industries that often face this problem .  Can you think of any?  What problems do they potentially face with discrepancies in their management of capacity and constraints?  Or can you think of a company that manages their capacity and constraints very well?

Quality leading to Quantity

In class, when we discussed quality management, I immediately
thought of the new company that my cousin and I have recently started. We are
currently selling produce products to restaurants and small produce centers.

When we were talking about quality management in class, I noticed
that when I met with our potential buyers, it was evident that they were most
interested in the best of price and quality of the products that they were
potentially buying. We understood that we had to find a way to obtain the best
quality produce to improve our reputation, therefore my cousin and I made sure
to get the best products available to our customers. Since we are just starting
this company, we are aiming for earning a great reputation with our current and
future customers. We do our best to increase our sales and have the lowest
prices. By competing with other competitors, such as major companies, when we
go to purchase the product for our customers after an order, we make sure to
pick and choose the highest quality produce of all the products available to us,
even if they are most expensive.

By having the best quality and lowest prices, we are able to
make a lot more sales to be able to make a higher profit.  By doing so, all of this will raise reputation
of our company and gain customer loyalty.

Unlike the other companies where the customers either go to
pick their products up themselves or have the products delivered for a price, we
offer a free delivery service with our products. This will not only benefit us
with customer satisfaction in the long run, it will also make our customers happy.
We are trying to serve companies locally for now so it’s easy for us to be able
to offer free delivery.

All the other employees that we work with are very close to
us and are known to be trusted to complete their tasks. This is very important because
we know that our customer satisfaction is extremely important, so it’s imperative
to have trusted co-workers. By wanting to succeed, we can also have product liability
by making sure that other products are in great condition by the time we get to
the customers. These services that we offer will give us a great advantage over
other competitors.

As a starter company, do you believe that we should be
offering a lower price than major competitors for our high quality produce?

Dead or Alive.. Your coming with me: A Sony Overhaul

While the times of technology are changing considerably, and new products are coming out based on the demands of consumers. There has been a variety of manufactures on board with technologies rapid changing environment. Some of the major manufactures encompassed in this movement are: Samsung, Sony, LG, and of course Apple. All of which are trying to compete with each other on numerous parts of the electronic industry.

I recently came across an interesting article in the wall street journal, that involved the (former) Sony Chief Executive stepping down and giving the role to a new Chief Executive named Kazuo Hirai. In my perception what was most interesting about this article was the fact that Sony’s old Chief Exec. was this charismatic man from great Britain who in 2005 managed to become the CEO, yet couldn’t turn around Sony’s electronic business. Now this was interesting to me on various occasions, in your perception why was Sony’s Gaming/Entertainment division prospering, while the rest of its electronics and accessories were at a decline.

Hirai made his name in the PlayStation video games division, once a key profit driver for Sony that fell into the red for four consecutive years until he took the reins and pulled it back into the black two years ago. His incentives are to specifically drive the growth of Sony’s core electronics businesses — primarily digital imaging, smart mobile and games; to turn around the television business; and to accelerate the innovation that enables the company to create new business domains.

Once upon a time ago, Sony used to be the worldwide leader in innovative technology, with its release of the Playstation 2 (which, at the time was the biggest gaming console release in the world). What happened?!

I decided to reflect on this article with you all for various reasons. Throughout the quarter in operations management we had talked about the various processes that encompass a supply chain, and briefly on how in many aspects of business ‘supply chain is everything’. I couldn’t agree more, although in my personal opinion I believe that Sony is doing the right thing in appointing a new CEO, who may very well understand its consumers better.  The word of the evening is “innovation”, as Sony innovated the consumer electronic industry (gaming) in functionality for its products. I firmly believe the same ‘idea’ must be implemented in order for Sony to sustain growth.

With a new CEO its going to be interesting to see the overhaul Sony partakes in, and what it could become. Dead Or Alive Sony needs an overhaul.




High Profit And “Fear Factory”

Last week we talked about inventory management and supply chain management which play very important roles in business management. Under the influence of globalization, many large international companies are involved in the global supply chain management and inventory management. A classical example is Boeing’s supply chain. To produce one airplane need more than 20 international suppliers in 12 countries. Since each country has its own areas of expertise, these international suppliers use their best technology to produce the aircraft parts which reduce the cost and improve the quality. So I think Boeing is one of the perfect products of global supply chain management. However, each coin has two sides. Although global supply chain has many advantages, it still has some drawbacks such as high risk, transportation problem, and political issue. To be successful, global supply chain has to be able to deal with unexpected issues and find a good way to solve the problems. And it is also important for a company to choose an appropriate supplier and manage it.

There has an article from Wall Street Journal indicated that a phenomenon of the exploitation of workers exists in Apple’s factory in China. This report definitely has a negative influence on Apple Inc.’s reputation. Apple Inc. has released a list of its suppliers couple weeks ago. This list included 156 suppliers and a report about those suppliers’ working environment and welfare issues. According to the report, 62% of Apple’s suppliers allow their workers work more than 60 hours per week and five factories hire minor workers. Hon Hai precision Industry Co. located in Taiwan is one of the main suppliers of Apple. It was called “fear factory” since a series of staff suicide occurred in 2010. Last week, Apple Inc. released their annual financial report. Since the demand of iphone and ipad has dramatically increased during the vacation, apple earned a huge profit with 131 billion dollars. I think Apple, as a high profit and high influence international company should pay more attention on their suppliers instead of just pursuing high profit.

What do you think Apple can do to improve their supply management?

Add a Little Lemon Zest to Your Strategy

Over the recent months, the price of spice commodities has begun to rise. The majority of these spices are grown near the equator. The region around the equator has experienced some devastating weather events that have affected the supply and also driven up the prices of spices. Additionally, countries which produce spices, such as Egypt, have experienced long periods of political unrest, which has also affected the cost of the commodities. Further still, the economic downturn has affected the demand for spices, especially among restaurants. McCormick & Co., one of the world’s largest spice dealers has seen the effects of these factors. In an interview with the Wall Street Journal, McCormick’s CEO Alan Wilson states; “the prices of most of our commodities have really surged in the last year.” All the while, demand for spices has declined as people have begun making simple and inexpensive meals in an effort to save money.

In the face of these natural, political, and economic factors, McCormick & Co. has had to make important capacity and inventory decisions in order to try to keep their profit margins. In response to political unrest in Egypt, the company decided to build up their inventory of herbs from the country in order to ensure they had those commodities in the future. As we know from our activity “The Gaming Company” from last week, it costs money to hold high levels of inventory, especially if a large quantity is purchased up front. The company also made sure to find additional suppliers of the herbs they normally purchased from Egypt to ensure they wouldn’t face shortages.

As costs of certain inputs rise, McCormick has had to make decisions about their production levels in order to once again achieve optimal operating levels. They forecasted that the demand they had been receiving from restaurants would decrease, and subsequently changed their strategies to regular consumers. In order to try to ride out the economic downturn, the company has turned their focus to marketing simple and inexpensive, yet delicious, meals to families by recommending popular spices and recipes cooked in the home.
Lastly, in an effort to save money and reach more optimal operating levels, McCormick & Co. has made a four year goal of saving $150 million in operating costs. They project that they will meet their goal a year ahead of schedule because they have been so successful at creating more capacity at their plants and have been able to avoid building new plants.

I have outlined only a few scenarios where McCormick & Co. has had to make important capacity and inventory decisions. It is imperative for companies to maintain a close eye on the environment outside their business so they are prepared for whatever may come up. Do you think the company is on the right track with their strategies as they face different external factors that impact their business?

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Making people smarter, one shower at a time.

Inventory management is definitely one of the most important aspects of any business! I am currently running a company selling educational shower curtains and one of the biggest hurdles we’ve been trying to jump is our stock issue.

My company sells over 10 different styles of educational shower curtains. We were the top selling shower curtain on, until we were out of stock of the top three styles being sold through Target. Since Target only carried three of our styles, we were unable to restock because we had around 6,000 unsold units in our warehouse of the other eight styles.

When it comes to getting products manufactured in bulk, there is usually a minimum order quantity. For shower curtains they generally range from 500-1000 units per order. This makes it difficult for small companies to project which styles will do well, and which styles won’t.

It was interesting hearing the professor talk about how crucial it is to have effective inventory control. This is definitely something I’ve experienced and still learning from!

Subway Eat Fresh! What you ran out of Lettuce?

Ever since we have done that forecasting activity in class last week, with us being in charge of ordering the right amount of boxes of inventory for the upcoming week, so we are not short or waste our product. It made me think about the time, when I worked at my Dads Subway franchise store. I felt like it was the perfect example since the process of predicting a future, underlined the basis of all business decisions mostly to do with personnel, production, and most important Inventory. I never really realized how important it is to make sure you have the upcoming inventory absolutely as close as you can. Thats not all in subway, I believe there are alot of things to do with forecasting at our store, such as the  demand forecast that leads to the price on the menu, depends on how many costumers like that sandwich,or even new products that come in with different promotions. We change up the price on the menu due to new items, class favorites, or just simply because of the economy. Now if plan on changing the prices, we cant just charge someone $15 dollars for a sandwich when it only cost 6 bucks. We have to use the actual demand for that sandwich, as well as forecast store sales around us in the same region, understand what there selling price is  and place a predicted demand of the data we know. The trick is not to place the price higher than your competitor and not lower that what you are need to make a revenue. Which leads us to forecast the right price so in the end we win both ways.

Not only does price have to do with subway Every 2 weeks we have to do an inventory count at our store, to see what we need or what was used more, making sure we dont miss a step since it is vital for our store to be fully stocked at all times. For instance if we run out of lettuce that day and realize that we still have 2 more days till the next inventory to be here, where in big trouble since we did not accumulate enough boxes of lettuce for that week. Which now leads us to shortage of lettuce for costumers that really need lettuce on their sandwiches. That applies to all meat products, vegetables, cheese, new supplies and containers. You guys might think OMG, this must be such a hassle, it kind of is, but what made it easier is the stable historical data that we have stored in the computer as well as a check list for previous entries of boxes we have sold before. This  includes all the information of product we use from months to weeks all the way to how much of the product we have used daily. This helps us alot to forecast our future weeks up ahead, the data can be all the way from 2 years back. I guess the forecasting Approach, is similar and alike as the Quantitative approach using existing products and current technology that is stable and consists of historical data. You might think that there is no mathematical approach but there is since we use our costumer data , as well as the gross income, to make the right decision so we dont wast our product nor are we running out.

Forecasting is not only big at our store it defines what we do everyday, to make sure that we never have a problem. Even Forecasting how many employees you want to work for that day. If we know a monday is going to be slower than a saturday, we rather put two workers instead of 4, how is that done by forecasting daily through our business revenue patterns through trend projection of monday to Sunday.

I guess the real question is what would franchises and business like us do with out forecasting? Have you ever gone to a place and found out that they ran out of something you really wanted? What other Managment Operations are used that I have not included in here?

Hope this was interesting 🙂