Inventory Systems Summary

Topics: Inventory, FIFO and LIFO accounting, Supply chain management terms Pages: 5 (1593 words) Published: August 30, 2010
Inventory Systems Summary: Learning Team A
Michelle Grace, Scot Breland, Marie J. Charles, and Nate Kirkland QRB/501 Quantitative Reasoning for Business
1 July 2010
Dr. Robert Kalle

Inventory Systems Summary: Learning Team A
Learning Team A met to discuss details of the assignment to analyze, compare, and contrast four inventory systems in preparation for future assignments (Breland, Charles, Grace, & Kirkland). The analysis presented describes four inventory systems as described and analyzed by each team member. Also included in the inventory systems analysis are four comparisons presenting the advantages and disadvantages of each inventory system with an overall ranking provided in summary. Learning team interactions via team meeting and daily communications and research conducted from various sources provide the foundation for the analysis and recommendations. Inventory Systems

Inventory System One: Just-In-Time
Description. Just-In-Time (JIT) is an inventory system that companies use to deliver a finished product to customers in the quickest time possible to reduce the overall ordering and inventory holding cost (Atkinson, 2005). The system proves to be most effective for companies that lose money for holding a product in its inventory for an extended period of time and that have the capability of lowering its ordering cost to make to profit. Advantages. Dell computers are a prime example of how using JIT reduced cost and improved the overall performance of their company. According to Atkinson, a computer loses value at a fast rate as it sits in inventory; therefore it is financially smart to supply customers with products as they are ordered. For every computer that sits in Dell warehouse over a span of seven days, one percent of its value is lost (Atkinson, 2005). To show how low inventory saved Dell money overtime a case study was conducted. According to Atkinson, ten years of data was pulled from that showed how many weeks worth of inventory a firm has by dividing the inventory turnover by 52 (Atkinson, 2005). Dell’s Inventory Turnover Data

YearInventory TurnoverWeek’s Inventory

This chart shows that in 1993 Dell carried over ten week’s worth of inventory. By 2001 the company carried less than a week’s worth of inventory. The company initially lost ten percent per computer by allowing the computers to sit but by continually cutting its inventory, reduced its cost by nine percent (Atkinson, 2005). Disadvantages. According to Beard & Butler, companies that use JIT may experience a few disadvantages with the system such as “uncooperative suppliers, a distance between the supplier and manufacturer, and overstressed workers” (Beard & Butler, 2000, pg 1). Other reasons why companies may have difficulty implementing JIT are due to the following: management may be unwilling to switch to JIT because of the initial costs involved, manufacturers in remote areas may not be able to arrange for frequent deliveries of inventory in small batches, as JIT theory dictates, and the manufacturing process itself may not be suited to JIT treatment, such as when some component of the finished product needs to be cured or dried between processes (Beard & Butler, 2000). Inventory System Two: Vendor Managed Inventory

Description. Vendor Managed Inventory (VMI) is a supply process where the vendor creates replenishment orders based on customer purchases from in-store stocks. The vendor and the customer agree to inventory levels, fill rates, and inventory costs. The VMI supply and inventory system improves supply chain performance by reducing inventories and eliminating stock-out. The vendor specifies delivery quantities through distribution channels through the use of and...
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