Cyber Monday

Tomorrow marks one of the busiest internet shopping days of the year. Companies are having to boost their inventories, but how much? Their first priority is to make a sale. This is very difficult throught the internet, because customers can cross-check prices between companies a lot easier. The price of the product needs to be reasonable to competitors. National retail chains are hoping to earn close to $700 million on Monday, and inventory is very important. With the easy use of e-commerce shopping, if a product is not in stock, the customer can go to another company. Retail companies need to look at lead times of products. If they are low on products and can get them quick and easily, there is no need to stock these, but order as needed. If they are difficult to obtain in a quick manner, how much do they need to have in inventory? What is the best way to avoid backorders and stockouts on this busy Monday?

Inventory Management on Black Friday

With today being the biggest shopping day of the year for many retailers, the question arises, "How have inventory management practices differed in preparation for this day?"

There is no doubt that many retailers depend on the Holiday shopping season to keep their companies in the black. So, with the importance of this day being so high, it is absolutely imperative that companies not run out of their most popular products. Thus, a great deal of forecasting and planning has, no doubt, gone into the inventory that is in stores today.

Firms that share information freely with suppliers should be more prepared for today than ones who do not. This is the case because of the bullwhip effect. Firms that are transparent with their suppliers will communicate their actual demand figures to those suppliers and will most likely receive that amount of product. However, firms who have a history of shortage gaming and over-ordering are more likely to cause a bullwhip effect in their supply chains. They will either over-order or order from multiple suppliers in order to ensure their receipt of the products. This will cause unnecessary fluctuations in an already turbulent supply chain.

Does anyone else have any other ideas as to how inventory management policies could change as a result of an increase in sales like the one experienced on "Black Friday?"

Probablistic Demand

In our studies of Probablistic Demand, I have learned that different probability distributions apply in different situations. In addition, I see the value of these models in their ability to approximate profitability based on different input factors and situations. However, I'm a little unclear as to what makes one probability distribution apply in one situation and another distribution in another situation. Can anyone shed any light on this subject?

When minimum cost doesn't equal maximum profit

I guess the only time that minimum cost doesn't equal maximum profit is when there are points in the profit function where revenue would increase enough to outweigh the increase in cost. This could occur if there was some sort of additional revenue at a particular point of sales. For instance, if certain customers cost more to service than others, servicing the more profitable customers to a level beyond the point of minimum cost may payoff with additional revenues that make the profit even higher.

Inventory Problem

The company I worked for this summer keeps a considerable amount of inventory. Most of their products are being shipped from China in containers and have at least a 3 month lead time. Their largest customer makes up about 60% of their revenue and takes up most of the run time during both shifts. The inventory is too large to keep in their main facilities so they have purchased extra space in a 3PL about 45 minutes from the plant. They have recently starting forecasting using a 4 month moving average which has done fairly well, but the purchasing manager isn't involved in many aspects of this process. Most of the managers and staff have worked there for more than 20 years and have become confortable in the way things have "always been done". I spent my summer trying to help them update their forecasting, reorder points, purchasing processes, unfulfilled PO's, counting inventory by hand and pretty much bring them into the 21st century. Does anyone else have any suggestions on what they can do to improve their practices?

More inventory changes as a result of hard times...

I read an article in the Wall Street Journal about how luxury car makers are struggling to sell their cars now that the economies in America and abroad are struggling. Now that large amounts of credit are not available, dealers are maintaining their inventories for a longer period of time.

A year ago, a Lexus LS sedan typically sat on the lot for 21 days before it was sold. Now, that number has increased to 62. And a BMW 3-series sat on the lot an average of 28 days a year ago. Now, the average 3-Series sits unsold for 49 days. So what changes will the automakers undergo in order to maintain the growing levels of inventory?

Most say that they plan to ride out the storm. There is an underlying belief that the economies will rebound and sales will increase again. In addition, some companies plan to alter marketing strategies, etc. in order to target customers differently.

But, BMW is planning to slow its production at its North America plant in order to ship less cars to dealerships. In other words, BMW is changing its production rate in order to move with the demand rate. While some businesses will build up large inventories during the economic downturn, BMW is attempting to maintain steady inventories. This makes sense as a strategy for BMW because if indeed demand does increase, they will easily be able to ramp up production because of the excess plant capacity they have.

The article can be found at:
http://online.wsj.com/article/SB122443910753248171.html

In response to Inventory management in Economic Crisis

This is a very good discussion where there is no direct answer. I spent a little time researching companies inventory during tumultuous times and they vary in how they believe is the best way to handle the problem. My opinion is to carry as little inventory as possible. Companies in retail and manufacturing are producing less, so why carry current inventory levels? Some companies are wary of purchasing excess inventory and believe to only buy or produce what is necessary. Others believe harder times maybe coming and buy excess inventory to build up for the future. We don't know what will work, but obviously one will be right and the other wrong.