Qrb 501 Week 2

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Running Head: INVENTORY SYSTEMS

Inventory Systems Summary
University of Phoenix
QRB/501
Quantitative Reasoning for Business
Instructor Joe Krupka
September 21, 2010

Inventory Systems Summary
In today’s economic recession, business owners are constantly looking for opportunities that would enable them to remain competitive through lowering their overhead cost. Kehrer (2010, ¶ 1) explained, “Bloated overhead is one of the major threats to small business competitiveness”. For this reason, it can be determined that business analysts are evaluating the different types of inventory management systems that could be applied to help reduce the cost of overhead and increase product turnaround. “Dell has achieved a system that at times leaves them with average inventories for long enough to last only three days. Instead of incurring holding costs, Dell doesn’t order until the demand is in place” (Atkinson, 2005, ¶6). Dell refers to this system as the Just-In-Time inventory system. The Vendor Managed Inventory system, a concept pioneered by Wal-Mart, is another inventory system that is paving the way for the future with its ability to communicate the demand of the customers directly to the supplier (Wal-Mart’s Focus on EDI, 2010). The summary will briefly describe the Just-In-Time and Vendor Managed Inventory Systems. Following the brief description, will be a comparison that indentifies both the advantages and disadvantages of each inventory system. Inventory Systems Description

Just-In-Time Inventory Management System
Dell Computer is a large personal computer (PC) provider. The company adopted the just-in-time inventory system to manage their profitability status and to gain momentum in the computer industry. In the former years Dell struggled with their finances in the computer technology industry because of miss-managed capital. The company maintained a large amount of inventory regardless to customer demands and forecasts. The large amount of inventory Dell retained created a significant decline in finances. In 1994, Dell introduced a new business plan that entailed a build-to-order process that included a direct sales process to the customers. Using the build by order process Dell sought out methods to eliminate excess large inventory. In the build to order process Dell would only produce the inventory when requested by the customer. The build to order process would afford Dell the opportunity not incur financial losses from overstocked inventory practices. The process would additionally allow Dell to allocate the financial resources to other critical areas. Over the course of a four-year span the revenue for Dell grew from $2 billion to $16 billion at more than a 50% annual growth rate (Greenberg, 2002). Dell’s stock earnings per share increased 62% in1998 and Dell's return on invested capital catapulted to 217% (Greenberg, 2002). Dell’s profitability is credited to the management and coordinating of the organization’s activities including the thorough management of the inventory system. In the new process for Dell the inventory system maintenance did not require large expenditures of advanced capital as the former inventory system required. The process involved targeting long-term corporate/individual customers and predicting the needs of the customers and their budget cycles. Dell developed a customized intranet Website with predetermined specifications and budgets for corporate customers (Greenberg, 2002). To retain high computer demands for individual customers Dell concentrated on using the latest technology products to entice repeat customers with regular upgrades and purchases that require little technical support. The system also requires the clients to pay up front by credit card. The demand management process enables Dell to match incoming demands to predetermined supplies and the pricing system reflected in real-time demand management. The just-in –time inventory system allows the sales executives,...
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