CONTROL YOUR INVENTORY IN A WORLD OF LEAN RETAILING
(SHRUTHI SURESH- A20265266)
Manufacturers are feeling the heat, as retailers are forcing manufacturers to predict demand and hold considerable inventories forever as they require ongoing replenishment of stock by embracing lean retailing practices. Manufacturers are carrying the inventory cost risk. The consumers demand and preferences for variety in products are getting difficult to predict, which can cause risk of lost sales, stock outs and eventually the goods have to be sold in a lower cost. Most manufacturers follow one inventory policy in a product line for all stock keeping units which can vary significantly. The profitability of the entire line can be improved by differentiating SKU’s according to their actual demand patterns. In sourcing strategies, SKU level differentiation can also be applied. It is better to produce low variation products offshore and high variation goods close to market. This way retailers demand can be met and costs and inventory can be controlled.
In 1980s, an imaginary company called Jeansco manufactured blue-jeans manufacturer which offered a dozen styles of jeans with different sizes along with an a total annual sales of 20 million pairs. With change in fashion the company had to hold bigger overall inventory. Hence the retailers stopped placing replenishment orders. Therefore, to maximize profits, a company must consider the complete set of cost and benefits of production decisions. A manufacturer can pay more to make certain units with high weekly variations in sales in quick production line and still reap a better return than by making all the products in a less expensive, slower plant. Therefore the manufacturers should see a product line as individual portfolios of distinct goods, estimate the risk that comes with generating different products when satisfying retailers demand and conduct SKU analysis.
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