Aggregate inventory data suggest that while overall average inventory levels are declining, the relative percentage being held by manufacturers is increasing. Explain why you think this observation is either true or false. Describe how such a shift could benefit the operations of the entire channel and how manufacturers could take advantage of the shift.
This observation can be true because the use of a warehouse can be reduced in a significant way making the overall process cheaper. But even that the process of warehouse can be reduced; it certainly cannot be eliminated because not having stock can produce a loss in clients, brand recognition, and future sells. The supply chain is a process that is not always as expected, it …show more content…
What is the impact of this trend on supply chain inventory? What strategies can firms and supply chain use to mitigate this impact?
As we understand that the 4 factors that a supply chain should offer are the efficiency, decrease in cost, availability, and responsiveness. The inventory represents the second largest component of logistics cost, that requires some serious attention and there is no room for any mistakes. The risk of holding inventory increase as they move every step closer to the customer.
If there will be rising demands for product customization, there will definitely be an impact on the supply chain. If the process and demands are higher, they process will take longer before it gets to the customer, which is the first problem. The second one is that these type of demands will increase the cost of doing business which will end up making companies less competitive. By increasing the delivery time and the process, the customer will have to bare the cost of losing potential and loyal customers as they won’t be able to provide the goods to there customers. This will have a negative impact on the supply chain. This will have a §long-term impact that would be hard to …show more content…
Carrying costs are the ones that include storage, maintenance, insurance and other less tangible expenses, opportunity costs or costs due to product damages. In order to calculate the carrying costs in the project that I am responsible to establish, I am definitely going to base my answer on the following formulas:
Inventory Carrying Cost (%) = Cost of Owning inventory per year / Inventory Value
Cost of Inventory per Year ($) = Inventory Capital Cost + Inventory Service Cost + Inventory Storage Cost + Inventory Risk Cost
Besides, opportunity costs are actually considered as the value of the next best alternative. Therefore, according to the different approaches that supply chain or operations managers choose, I would prefer to remain on the basic calculations, as long as the project is not seemed to be very complicated. So, in my case, I will get the opportunity cost by dividing what we as a company is sacrificing, over what we are gaining. The reason why I have chosen this kind of formula is very simple because there are too many costs have to be considered, such as explicit costs, time, job specialty and etc. As an example of implication of the opportunity costs in the real life could be the certain situation. Company has $300,000 in their current budget. Their operations and business activities became very slow and unproductive due to lots of misunderstanding inside the organizational climate. Consequently, executive have to decide either they want