Inventory Management

How Could Obama’s Re-Election Affect The Country’s Largest Inventories?

Posted on by f1234eschutz

Did you follow the election closely? It seems like everybody in Chicago has been fascinated by the election this week. It is interesting to be a student during a presidential election year. Regardless of your major it is interesting to be a student during a presidential election year. You get to see how topics in your classes directly relate to different stances taken by the candidates. Four years ago it was widely discussed that one of the biggest reasons that Obama won was due to the fact that he was able to capture a good majority of the student vote.  Students around the country are one of the biggest groups that are able to influence an election outcome. Through our experiences at DePaul in classes such as this one we can connect election issues to how they relate to real world topics.

I want to discuss one of the ways that Obama’s reelection directly relates to one of the United States biggest commodity inventories. This inventory being our coal supply.  Also we can take a look at how the outcome of this scenario might change had Romney been elected. As many of you who may have followed the election already know energy was a big topic in this year’s election.  The Democratic Party has taken a stance of heavily supporting new energy sources that are cleaner. These sources include natural gas as well as other renewable sources like solar energy. The Republicans on the other hand believe that instead of spending money on new sources of energy we should first exhaust old sources such as coal and new oil reserves.

Why does this matter and how does it relate to Management? Now that Obama was reelected coal companies have prepared for a downturn in business. They are foreseeing government friendly contracts and laws go in favor of new energy type resources. As a direct result they have started producing less coal and will be keeping less of a supply on hand for the coming years. As we have discussed in class there are many factors that can influence an organization’s inventory. Normally these factors have to do with a consumer at the retail level that buys a product. Also companies normally look at a variety of factors that will help them determine what level of inventory to stock. It is interesting to see that at a macro level for a major U.S commodity sometimes this is not the case. In this case the presidential election was the only factor that caused companies to reduce their inventory levels drastically. This is an interesting connection to make because one would think that U.S. commodity inventories are normally more complex than U.S. retail levels in regards to decision making. Although this seems like a dry topic I’m about to tell you why this is so interesting. For business students who understand this relationship there was a lot of money to be made in trading coal stocks before the election.  Coal stocks reacted to the possibility that Romney could be elected and coal supplies could be increased in the U.S. This speculation in the market up until the election caused some companies to increase almost 200% in a matter of weeks. An understanding of this concept could have netted investors nice profits for the year by looking at a basic management concept.

Hungry? Serving up the Supply Chain

Posted on by f1224hpham

 

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?

 

http://nrn.com/article/darden-making-progress-supply-chain-overhaul

McTurnover Rate

Posted on by f1231saddison

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.

http://beginnersinvest.about.com/od/analyzingabalancesheet/a/mcdonalds-vs-wendys.htm

Boeing’s Great Supply Chain Mismanagement

Posted on by f1232jkelly

Boeing gets grip on 787 supply chain with upsized jumbos

Read more: http://www.foxbusiness.com/news/2012/10/10/boeing-gets-grip-on-787-supply-chain-with-upsized-jumbos/#ixzz2AHUOY5Jd

According to Boeing officials and reports, they have begun to take back into organization their supply chain management. Their new hook on their global supply chain will increase production of their new, “Dreamliner” jets. On there other hand, there are many people who believe that this increase in production from new supply chain management will, “expose new supply bottlenecks” (Kelly, 1). Boeing has had past trouble with their deadlines on production. They have numerously delayed their scheduling because of management issues. Boeing has had, “difficulties managing 325 suppliers building parts for the 787 at 5000 factories worldwide” (Kelly, 3). Boeing plans to raise their carbon-composite jets per month by one and a half. This target increase in production is expected to be very difficult to achieve, but they believe it is possible. Jeffery Luckey, a supply chain management executive at Boeing, said, “We are currently on a path to achieve ten [per] month” (Kelly, 7). This jet’s production is the most outsourced in Boeing history. One company outside the US working on the jet is the Fuji Heavy Plant in Nagoyia. This plant is the sole supplier of a one-of-a-kind fuselage needed for the Boeing jet. Boeing’s planned production increases will increase strains on suppliers such as these creating new bottlenecks in the supply chain (Kelly, 8-9).

As we have learned from chapter 11, bottlenecks can be created when there is one process in the production that is essential to the product and can take a long period of time. Boeing is seeing new bottlenecks appear because of their increases in production scheduling. It is interesting to see how new supply chain management problems occur and what implications they can have on outsourcing and global supply. Boeing, if their production process is going to fit their production schedule, needs to manage the new bottlenecks that are going to occur because of their increased demand. They will have to take into account the abilities and capacities of their suppliers when making there forecasts, and release work orders at the adjusted rate from the bottleneck. One idea Boeing could look into would possibly be searching for methods to increase the capacity of their bottlenecks so that overall system capacity can increase. Moreover, changing production forecasts and changing supply chain management strategies will always require adaptations to resulting problems such as new bottlenecks, starving, or blockings.

Boeing has been increasing their production schedules because of increased demand for their 787 Dreamliner Jets. They are forecasting higher production rates despite possible bottleneck problems and other supply chain management issues. Do you believe that Boeing should take outsourcing needed for these increases in production into account? When using supply chain management to maximize shareholder value, should the ethics of outsourcing always been taken into account by managers? Do you believe Boeing will be able to effectively manage their vast supply chain in filling the 824 orders for Dreamliners and Dreamlifters?

Boeing Dreamliner Jet

Walmart vs. Amazon: Same Day Delivery

Posted on by f1224sshelhamer

SAME DAY DELIVERY:

Walmart has been in competition with the large online retailer of Amazon for a few years now.  This includes price competition, product availability, and other services to attract customers.  In a new service called Walmart To-Go, customers may purchase a product available on Walmart’s website and chose to have this product shipped and delivered to their household in the same day for $10; as long as the following conditions are met:

  • The product must be purchased online before noon
  • Does not include shoes, apparel, or grocery items
  • And is currently only available in a few select trial cities, Minneapolis, San Jose, San Francisco, and Northern Virginia

This compares to a similar service that Amazon provides; however, the select cities are different and it is only for a cost of $8.99 compared to Walmart’s $10.  Walmart’s fee is firm, no matter the size or price of the product while Amazon has an extra $0.99 charge for each additional item.  Amazon’s service also is effective only if the product is purchased within a window prior to noon.  According to the retail strategist, Al Sambar, “it can be three to four times the cost for the retailers to pick items and pack them versus a distribution center.”  However, Walmart can take the risk because the corporation currently has the free cash flow to experiment with this service.  As a shipping service, Walmart will use United Parcel Service to deliver their products on the same day, as long as they are purchased before noon.

Along with the same day delivery service, the article also discusses that Walmart has been matching the prices of products in their stores with ones found on Amazon.  And according to the corporate policy of Walmart, they do not match prices of competitors.  However some stores may not uphold this policy consistently.  This technique has been done under the table, and executives are in discussion to possibly changing this price competing policy in the near future, possibly closer to the holiday season.

So in the end, who has the competitive advantage providing a same day delivery service?  Walmart has a network of thousands of stores to check availability of a certain product and has the free cash flow to experiment with such a service while Amazon “has years of customer data at its disposal.”  Amazon is solely an online retailer and has revolutionized their logistics and website, while Walmart is making strong efforts to compete in e-commerce.  How might Amazon respond to Walmart’s move to match their same day delivery service?  With the up coming holiday season, how many will choose to utilize one of these services?

Wall Street Journal Article:

http://online.wsj.com/article/SB10000872396390444897304578046461338658772.html?mod=WSJ_article_comments#articleTabs%3Darticle

Shop Like It’s 1999!

Posted on by f1223jkundrat

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?

http://www.cnbc.com/id/49302750

http://chainstoreage.com/article/sears-kmart-jump-layaway-bandwagon-waiving-fees

 

Amazon will start selling wine? Is it a good idea?

Posted on by f1233tngamboon

Amazon was introduced in July of 1994 as a small online bookseller. It later expanded to all household categories. Today, Amazon offers the Earth’s biggest selection of products in more than 160 countries across the world making them the leading online shopping site accessed via the World Wide Web. In addition, Amazon is planning to launch an online wine marketplace in the coming week.  Do you think it’s a good idea for Amazon to sell wine online? Instead of waiting in line or wait until the shop assistant is ready to help you with your purchases at the store, you can do your online shopping while at home, work, or in the meeting.

On Monday September 24, Amazon.com hosted a workshop and invited members of the Napa Valley Vintners association. At the work shop, there were meeting 100 different wineries. Any wine lovers can now sitting in their room and order it online. According to Wall Street Journal, Amazon said the marketplace would begin “in the coming weeks” and the online retailer will be charging 15% commission of the sale price, as well as a monthly fee of $40 in order to join the marketplace. Each winery will be required to handle their own shipping and compliance with various state and federal laws. In effect, Amazon’s Wine Marketplace will provide a portal for wineries, putting their wines in front of potential customers, while the wineries will handle sales, shipping and legal hurdles.

However, this is the third time they have tried to sell wine on the internet. In the year 2000, Amazon invested $30 million in Wineshopper.com, but closed down ten years later as the business did not perform to expectation. The second attempt was in September 2008. Amazon hoped to sell wine, but it was not successful. They have faced another financial crisis, and almost lost the company. So will this third attempt be successful?

Amazon is again taking a very risky move, but I feel that Amazon can do it. I think Amazon actually made a smart decision to keep expanding the products to keep abreast of the competitions, like eBay and Wal-Mart. However, they are actually now get a new rival;

Wine lovers are present at every nook and corner of the world. Also because Amazon offered a wide variety of product, low prices, and worldwide shipping, people choose online shopping rather than going to shopping mall. There are many reasons I preferred online shopping. Every Saturday I turn on my laptop as soon as I woke up on. I played game and shopped online as I have breakfast. At lunch time, I had a sushi delivered! I preferred to stay home when I have free time and I am sure that I am not the only one.

 

Question: Do you think this third attempt of Amazon will be successful?

Source http://www.winespectator.com/webfeature/show/id/47366

 

 

Quality of Care or Save money? Maybe Both

Posted on by f1223nlopez
Inventory system being used

One of the most depressing parts of this article was the fact that some hospitals believe they have to choose between quality of care and saving money. Why can’t you have both? This is what Seattle Children’s Hospital is helping to solve.

Before implementing the continuous performance improvement plan, nurses at the Children’s Hospital actually resorted to stealing and hiding tools and supplies needed for everyday use. When reading this, the first thing that came to mind was a hotel. It reminded me of taking supplies off of the housekeeping carts and storing them in the hotel room. So is this a proper way of keeping track of inventory? Of course not, so they implemented a plan similar to retail or manufacturing companies, where each nurse would have a fully stocked cart with two bins for tools and supplies needed for everyday use. When they used one bin, the next would be readily available. The empty bins would then go to a central supply office where the bins are scanned for restock or reorder. If this sounds oddly familiar, it should. The company most known for this inventory plan is Toyota.

I saw this plan up close and it really works well. I plan on working in the Healthcare field after graduation, so I shadowed a healthcare administrator at one of the Park Nicollet hospitals in Minneapolis (not at the Minneapolis campus with Nellie Munn). This inventory system is actually one of the topics you can still talk about with nurses and see how they needed time to get used to it, but highly prefer it over the other “steal/hide” system.

Do you think that Hospitals should start implementing methodologies of operations management?

 

http://www.nytimes.com/2010/07/11/business/11seattle.html?pagewanted=all&_moc.semityn.www&_r=0 

 

What a store might know about YOU…

Posted on by f1233rpfeil

Many companies are using technological tools that change the way inventory management is conducted. In our fast paced, global market, companies cannot have idle assets and goods piling up. Inventory carrying costs can significantly impact the bottom line and congest cash flow operations. Accurately forecasting sales and demand is important in order to approximate the appropriate production volume to avoid these costs. How does a business deal with being too optimistic with its forecast and produce too much? It must find the most efficient ways to sell these extra units in the shortest amount of time. What type of technology is there that can solve the dilemma?

 

The Washington Post had an article covering one of the possible solutions. A law school graduate and entrepreneur, Fuentes, explored ideas on how to improve processes and sales within the retail store he worked for. He collaborated with his supervisor and executives regarding the problems he saw and how he can help them move products faster out of inventory.

 

Fuentes began experimenting with his new ideas with customers and said that he could possibly discount a particular item in two to three weeks and contact them if they were interested. He then tracked who wanted to be contacted and what item they were interested in buying at the discounted price. Before a product goes on clearance, it can be sold to some who is already interested. This system inspired Fuentes to create Lemur IMS. He describes it as, “An inventory management system for big-box retailers that connects local customers with local, slow-moving inventory.” He found this to be especially helpful to smaller stores that needed an edge to compete with larger stores in the community.

 

The Lemur IMS is effective because it increases revenue and more importantly, delivers personal attention and offers customers the products they want at a better price. This is fantastic because it decreases the amount of customers that turn to alternative competitors for lower prices or easier accessibility for the specific product they are interested in. If they like a product but do not want to pay that price, the store can offer to contact the person if the product is available at a lower price later.

 

A relevant trend and (obvious) concept that is providing customers with greater value is customization.  Lemur can be used on a tablet app, which is customized for each specific retailer. It can even go to the extent of tracking, “who is interesting in what product, at what time of the year and at what price.” Fuentes mentions that his tool for managing inventory is unique because, “It looks at all aspects of inventory information, not just velocity, cost, and revenue.” This deeper approach seems to be very effective. What other systems are available? What competitive advantages do they offer companies’ operations and inventory management?

http://www.washingtonpost.com/business/capitalbusiness/business-rx-inventory-management-system-company-needs-to-know-what-to-focus-on/2012/02/15/gIQARWt1NR_story.html?wpisrc=emailtoafriend

Inventory Management: The New Approach

Posted on by frankr301s12

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?