Inventory Policies from this class

Of all the inventory policies we have been over in this class, I think that the most recent ones are the most valuable/useful. Base stock,newsvendor, and (Q,R) are important I think because they deal with uncertain demand factors which is almost always going to be the case in the real world. I think systems such as EOQ and EPQ are good for understanding the basics of inventory policies and what factors contribute to an optimal system but because of the assumptions required are not incredibly useful later on in the real world. Also, I think that systems involving backorders are more useful than ones without just because more companies probably have a system in which backorders are a real thing. Most companies allow you to order products if you they don't have them immediately in stock. So I think the ability to know what impact backordering costs has on your inventory policy is very important. All of the models we have seen add something unique to your knowledge about inventory policies and are important in their own right. I just wanted to point out a few things that I thought are important for future endeavors.

-Mark Brislin

Success of Alabama Football and Increase in Merchandise Sales

With any teams success comes the increase in merchandise sales. I thought it would be interesting to talk about this now given that Alabama is 12-0. With the increase in sales, comes the need to carry more inventory as to meet the demand of the customers (customer service). This requires companies to try and plan for the increase in sales, which also requires them to coordinate with their suppliers as to make sure that they can handle the increase in demand. While it may be beneficial to order the amount of product that results in the lowest costs, it may be better to order more and pay the higher holding costs in order that your customer service levels remain high. Satisfied customers could turn out to be very profitable in the future when they want to purchase something again if they know that they can count on you to have the product in stock. Deciding on how much inventory to carry is not something that should be taken lightly. It requires specific planning and forecasting based on your gut feel as well as looking at past situations of similar magnitude. Overall, companies that have good relationships with their suppliers stands a better chance of getting the extra merchandise than do other companies.

Michael

R2 Software

http://www.marketwatch.com/news/story/Creative-Technology-Concludes-Successful-Roll/story.aspx?guid={CC08E8E3-F1E4-41F9-B0FC-344BF69F97D8}

I found this article which talks about the implementation of UBS's (Unique Business Systems) enterprise wide at Creative Technology US. R2 is the #1 software for Inventory Management, Rentals, and Labor Management for the AV, Staging-Rental industries. This has resulted in their inventory visibility increasing and reduction of unknown quantities by 15%. R2 handles all the company data across several versions and does it all at one point. This allows more security as data is not accidentally leaked to competitors and organization and efficiency improves. I think this is a great example of how a new integration of software can make improvements for a company in several different areas. I encourage you to read the article, and give your opinion on the decision to implement R2 at CTUS and the improvements they made as a result.

-Mark Brislin

Where Minimum Cost doesn't equal Maximum Profit

I thought of some situations where this might apply, although I'm not sure of the specifics.

I would think that when there is some kind of cap on total cost, like once your order reaches a certain point, then the cost is capped and can not go any higher. This would make your cost higher than the minimum but there could be a point of order amount above that where it becomes more profitable to buy that amount even though the cost is higher than the minimum.

I would think this is only really possible when special constraints or features affect the costs.

-Mark Brislin

Obsolete Inventory

I wanted to talk about an issue I encountered during my internship this summer--what should you do with obsolete inventory. Working for a company like Intel, obsolete inventory is a constant concern as new technologies are developed. During my internship, I was faced with the problem of figuring out what to do with a small stockroom full of medical devices (peripherals) that had been previously purchased to test/use with Intel's Health Guide. These devices became obsolete for a variety of reasons--they expired, the suppliers changed the software, Intel decided to use different peripherals, etc. We considered several options, such as reselling the devices through Intel Resell, holding on the the inventory for testing purposes only, destroying the inventory, or even donating the inventory to a hospice. Intel Resell was ruled out immediately due to the fact that Intel Resell is a corporate-wide division that sells computer products, Intel did not want to get involved with selling items such as blood pressure cuffs, scales, oximeters, and other medical peripherals. We played with the idea of keeping the inventory for some testing purposes, but the inventory had not been controlled as well as it should have been, so it was difficult to differentiate between the peripherals that had the most up-to-date software and the truely obsolete peripherals. The easiest thing to do would have to get rid of the inventory, but because these peripherals were medical devices, I had to consult with others familiar with the FDA regulations. It was determined that the best thing to do would be to donate some of the devices that could be considered "non-medical," such as scales to a hospice and to destroy the remaining obsolete items in inventory. Disposal of the destroyed items is a whole separate issue, but it is also something to consider. This example shows that a seemingly simple inventory issue can have multiple levels of complexity.

Corporations and the Economy

This subject is not directly related to inventory but it is a factor involved.

I wanted to talk a little about companies in the current economy and problems they face during recessions. I believe a main problem most companies run into today is they falsely believe that the current situation will always continue to improve.

By this I mean that companies tend to want to expand and open new stores as quickly as possible while overlooking that things could do go downhill at any time without warning. So companies that have been pushing hard and really taking risks to expand and make as big of strides as possible are really hit hard when we enter into a period of recession as we are now experiencing.

This results in many companies facing bankruptcy or having to sell to another company in the industry when times get rough. Many times these expansions happen too quickly and the proper care is not taken to make then necessary changes that come with increasing globalization and a larger logistical network.

I think that they should focus on improving their logistic network, cutting costs, cutting inventories, and optimizing their systems before moving to expand. By taking these precautions as they make these expansions, they keep the company much safer and more stable. Instead, they tend to wait until crunch times like now to try to scale back and cut costs and it becomes very hard to rush the necessary changes. The companies might just cut workers and make short term changes that don't really fix the problems, and then go back to expanding and doing the same things they always did when the economy starts to improve again.

I think this is a very dangerous way of handling the problems of the economy and managing the expansion of a business. Much more attention can and should be paid to issues such as this in U.S. companies.

-Mark Brislin

Effects of Current Economy on Companies

The above article focuses on Nordstrom and what they are facing when opening new stores in an economy that many feel with not sustain new businesses. The main thing that Nordstrom must do is to find ways to cut costs in an attempt to gain higher profit margins. While many feel that one of the easiest ways to do this is by eliminating some of your workforce, Nordstrom believes otherwise. They feel that they need their employees in order to offer great service to the customers. This philosophy is good for a company like Nordstrom who focuses on higher quality and needs the interaction with the customer for increased sales. I feel that the best way for them to cut costs is to make sure that they have the right inventory on hand, as to make sure that inventory that is not in high demand is not being held (increased holding costs). I feel that this article does a good job of showing how new additions to a company during an economic slowdown are not always going to be bad for that company.


Michael Cook