Business: Inventory and Safety Stock

Good Essays
1. How does the cost of carrying inventory impact the traditional earning statement of the enterprise?
Inventory is a significant cost center, the reduction of a firms inventory commitment can by a few percentage can result in dramatic profit improvement.

2. What is the relationship between service level, uncertainty, safety stock and order quantity? How can trade-offs between the elements be made?

Inventory policy: Guidelines about what to purchase, when to take action and in what quantity.

Service level: Performance target specified by management. Defines inventory performance objectives. Measure in terms of order cycle and includes time, case fill rate, line fill rate, order fill rate and any combination of these.

Safeety Stock: Safety stock (also called buffer stock) is a term used by logisticians to describe a level of extra stock that is maintained to mitigate risk of stockouts(shortfall in raw material or packaging) due to uncertainties in supply and demand. Adequate safety stock levels permit business operations to proceed according to their plans.[1] Safety stock is held when there is uncertainty in the demand level or lead time for the product; it serves as an insurance against stockouts.

Order Quantity:

3. Discuss the disproportionate risk of holding inventory by retailers, wholesalers and manufacturers. Why has it been a trend to push inventory back up the channel of distribution?

Wholesaler: Purchase large quantities from manufacturers and sell smaller quantities to retailers. The economic justification is the capability to provide retail customers with assorted merchandise from different manufacturers in specific quantities. Product line explanation is a challenge as well as seasons.

Retailer: Buying and selling velocity. Assume risk in the marketing process. Wide, not deep, have a high cost of store location.

Manufacturer: Risk is long-term. Caries upon a firms position. Measures of inventory commitment is

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