Rjct Task 3

Topics: Inventory, Vertical integration, Inventory turnover Pages: 5 (1615 words) Published: March 12, 2013
A. Supply Chain Strategy: I recommend the Keiretsu networks as the correct supply chain strategy for the power tool company. The three main strategies are the Keiretsu network, virtual company, vertical integration. All of them have their advantages and disadvantages.

In a Keiretsu network the manufacture will combine the best features of all three methods, it is part collaboration, using fewer suppliers and some vertical integration. An example of this style of Keiretsu network would be that the tool company can work closely with one supplier, such as a parts maker but not by buying out the company. Here the commitment to a long term business relationship promises continued mutual growth. They collaborate with each other and share expertise to improve their production.

A virtual company is a network of independent companies—suppliers, customers, competitors, that are joined by information technology or intranet to share expertise, labor, costs, & access to each other's markets. Such companies are normally formed on the basis of joint venture agreement with little or no organizational chart. This fluid style reduces the impact of the agreement on the individual organizations and facilitates adding new players with new skills and resources. Such deals can be temporary and the dissolved once the business objectives are met. A virtual company is rarely associated with a brick and mortar identity of itself.

In vertical integration the power tool company owns all aspects of the supply chain. The company would purchase or have the resources to manufacture all of the internal parts of the power tool equipment. The manufactures would buy out the distributor or the supplier. There could be backward integration where the manufacturer decides to build its own parts for the power tools. Forward integration would be purchasing a manufacturer that makes the finished products. In this model it is difficult to do everything by itself.

I recommend using the Keiretsu network. This keeps the cost lower than a vertical integration. As this business is long term and a virtual company would not be appropriate. While the vertical integration strategy would be effective in managing our supply chain, the cost in buying the supplier will be very high compared to the Keiretsu network (Heizer & Render 2011).

B. a. Inventory Turnover: This is the number of times the power tool inventory turns over per annum. It is one of the most commonly used Supply Chain Metrics for manufacturing type of business. Turns can be viewed using Cost Value, Retail Value or Units. Method: A frequently used method is to divide the annual cost of sales by the average inventory level. Example: Cost of Sales = $49,000, Average Inventory = $7,000, $49,000, / $7,000,= 7 Inventory turns


Inventory Turnover can be a moving number.
Example: Recurring 12 Month Cost of Sales = $24,000, Current Inventory = $5,000, $25,000, / $5,000,= 5 Inventory turns
Projected Inventory Turns: Divide the total cost of 12 month sales by the total cost of goal inventory. Example: The total cost of 12 month sales is $40,000 total cost of goal inventory = $8,000 $40,000, / $8,000,= 5 projected turns

Retrieved from http://www.supplychainmetric.com/inventoryturns.html

The answer is the number of inventory turns - in the tool company is 5 or 7, that means that the tool company sells all of its inventory 5 or 7 times depending on the above method each year. To determine if this turnover is good it has to be compared with other power tool companies. If for example the competitor’s rates are higher then the question would arise as to how much more should be invested in maintaining ready stock. It could also be said that tool company’s turnover is lower but has a stronger financial strength. The number of days a company should be able to sell its inventory varies by industry. Retail stores and grocery chains for example have a much higher inventory turn rate since...
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