1. Explain how to get an accurate measure of inventory carrying costs and why this would be important. Inventory carrying costs are one of the most important things that a firm needs to take in to consideration when following marketing logistics strategies. Inventory carrying costs can be associated as costs that a business incurs from the amount of inventory that they have to store for any given period of time. As stated by Lambert this is one of the highest costs associated with logistics. Because of the high inventory costs, the management team of a firm needs to take this in to consideration and calculate an accurate measure of the inventory carrying costs associated with their corporation. In doing, so management may be able to devise a plan to reduce some of these costs and create a more efficient less costly inventory plan.
In the text, it states that the inventory levels in a firm affect the corporate profits obtained from the sale of goods. I have learned that many companies do not take the time to calculate these costs. Instead, they use the industry averages. This is not a good approach to creating lower inventory carrying costs. A Company needs to be able to create an environment where they can obtain the highest profit and have the least amount of excess inventory possible. The cost of a company’s inventory should not include anything more than costs based on the amount of inventory you have. Some components are capital costs, inventory service costs, storage space costs, and inventory risk costs (Lambert 153).
The Essay on Auto Data System Cost Inventory
XYZ QUICK LUBE Co. The purpose of this exercise is to design a single user system, to solve the needs of a startup business. The business I chose is a service oriented, automotive oil change company. This system will need to satisfy the business needs of a small company, including database queries, inventory management, customer tracking, form generating, accounting, and many other functions. This ...
I will discuss in detail a couple of the inventory carrying cost components. I feel that the capital costs and the storage space costs are two very important components associated with inventory carrying costs. Storage and space costs are considered as the costs that are associated with storing goods for any given amount of time. These costs generally very with the amount of products that are moved to and from storage facilities at any one time. There are four general storage space costs plant warehouses, public warehouses, rented warehouses, and private warehouses (txt 157).
Plant warehouses generally have costs that vary with the number of products that are taken in and out of storage. Public warehouses usually base their costs on the number of products that are moved into and out of a warehouse and the amount of inventory in storage. Rented warehouse space is generally contracted for a certain period. The costs associated with a private warehouse are just the fixed costs of the company since they own the warehouse. The other two components, which are the inventory service costs and risks. They cover expenses such as taxes, insurance, obsolescence, damage, shrinkage, and relocation costs.
I feel that a company needs to pay close attention to all cost and take in to consideration the effects they may have on the cost of carrying inventory. The main goal of a firm is to create a way to reduce inventory levels. In assessing the cost of inventory, a firm is able to realize that excessive inventory levels provide no benefit to a firm. In-fact they just create a higher carrying cost. By reducing these costs, the money could be used for another purpose where it will obtain a higher expected rate of return. (txt 161) This is a very important factor for a firm to understand in order to maximize profit and expected rate of return. By creating an efficient and accurate inventory carrying cost, the firm is able to save money and to create a lower cost of money for the business 2. Describe the relationship between inventory carrying costs and inventory turns. What is the business lesson in this? One could say that the effects on inventory carrying costs and inventory turnover are very closely related. I believe this to be an adequate statement. Inventory carrying costs can be associated as costs that a business incurs from the amount of inventory that they store and the amount of time that it is stored. On the other hand, Inventory turnover is considered another form of the measurement on inventory performance. Just like with the level of inventory carrying costs, I associated the fact that the higher the rate that inventory moves through a firm the greater the amount of inventory turnover will be created.
The Term Paper on Analysis Of Scientific Glass Inventory Management Finance
The products of Scientific Glass include customized and specialized glassware for a variety of organizations such as pharmaceutical companies, hospitals, research labs, quality-control sites and testing facilities. By January 2010, a substantial increase in their inventory balances tied up the capital needed for investment for expansion. The debt-to-capital ratio exceeded the 40% target preventing ...
In comparing the carrying costs to the turnover rate, a higher turnover ratio will result in a faster product cycle occurrence. This is a better more efficient method than retaining products in storage for a long period. When comparing the inventory turnover rates with the carrying and storage costs of products, a company will be able to improve their long-term profitability on their products. Lambert states in the book that the inventory turnover as compared to the carrying costs will have the greatest impact if the inventory turns less than six times per year. After about eight turns, a product inventory carrying costs verses the turn seems to level off (txt 166).
Based on the graph in the text this statement is a good example of the turns associated with the carrying costs on a product. In reviewing this graph, I realize what the authors mean when they state that after about eight inventory turns the carrying costs begin leveling off.
Based on text books example calculating the costs on a per item basis you would want to take the carrying costs of the items and divide out the inventory turns to get the costs on a per item basis. The turnover rate on this chart was calculated on an inventory carrying cost of thirty dollars for the period of one-year (12 months).
By reviewing the graph I was able to realize that the more turnovers a product has in its cycle the lower the carrying costs associated with the product. However, this is not always the best way to gain profitability on the returns. If the turnovers get to big and the carrying costs associated with the products are to low this could create the inventory levels to fall below the optimal levels for the industry (Lambert 166).
The Research paper on General Electric Medical Systems – Global Product Company Concept
The Global Product Company concept means ”to concentrate manufacturing – and ultimately other activities – wherever in the world it could be carried out to GE’s exacting standards most cost-effectively”. That means that the production is moving to countries where people are mostly underutilized (the example given in the case study tells about engineers from Eastern Europe, who cost only $1,5/h). ...
On the other hand, if a product only makes a turn of about one time per cycle all of the carrying costs for the product are retained. In this instance, if the product were only to turn one time the carrying costs would be thirty dollars. This is a good example of how a profitable retailer can be placed in to a loss position because of the high carrying costs of a product that have a fast turnover (Lambert 167).
In assessing the inventory carrying costs verses the inventory turnover I feel that a business needs to take a cost benefit analysis of the inventory levels on hand and what the costs are. In doing so a firm will be able to realize the amount of inventory that is needed and what is excess. By eliminating the excess inventory, the carrying costs of inventory will decline resulting in lower per item costs. Besides the lower ones costs the higher the rate of profit return that is realized on the products. As stated in the section on inventory carrying costs the higher the amount of inventory the more money that is tied up that could be used for another purpose (Lambert 153).
The amount of inventory turnover can be associated with poor management. If the carrying costs on inventory are to high and the inventory turns are to great then firm’s profits will have declined to the point of loss. Based on this statement a firm has to create a situation where the carrying costs are low and the inventory turns do not flat line. 3. What constitutes JIT, and why would it be a good idea? Just in time inventory (JIT) can be viewed in a few different forms. However JIT is basically considered as an inventory management philosophy aimed at reducing waste and redundant inventory by delivering products, components, or materials just when an organization is going to need them (txt 28).
In reading in to the whole concept of JIT it seems as if it is a system where you are combining all of the logistics activities in the company into a smaller more concise system. The main goal of implementing the JIT system seems to try to cut down on wasted inventory in storage resulting form over production and other factors such as obsolesce. By implementing the process of JIT, the management’s view on the company will change and their main goal will be a continuous ongoing effort to improve the company’s logistics system.
The Essay on The Just In Time Inventory System
The Just In Time (JIT) inventory system is an inventory strategy used by businesses to increase productivity, quality of product and sales, while decreasing labor costs and space. JIT allows a company to purchase materials only as needed to meet actual customer demand. When using JIT, inventory can be reduced to the bare minimum, even to zero. To successfully implement the JIT inventory system you ...
The JIT system is a philosophy that someone has implemented in order to create a better, faster, stronger working environment for his or her company. In general, the process of JIT can have many benefits to a firms logistics system. Some of the benefits that are implemented through JIT are:
Using JIT, many companies have found that they were having improved inventory turns, their warehousing costs and space were being reduced dramatically and the response time for customer orders was increasing. A few other things that can be related to the JIT process are things such as a lower rate for transportation and an improvement in the quality of the goods that are being sold (txt 199).
The concept of just in time inventory seems to be a very straightforward concept to grasp. When we look at the underlying, facts JIT would be a perfect efficient cost effective process for almost any firm. However, there may be some drawbacks to the whole process of JIT. The process of JIT might not be the best logistics process for many firms. To implement a good JIT plan you need to be able to have suppliers that are able to meet your need and they need to be in a location that is not to far from your plant. In other words, the suppliers that you are using for your product line need to have a system implemented where they are on a schedule that meets the needs of your company. The whole idea of this process is to reduce the levels of inventory and the costs of production to create a higher profit return. If the suppliers are not able to meet your schedule, you will have problems using JIT. With the JIT process, your inventory levels will be reduced to nothing and you will have little or no safety stock to keep production rolling.
A good example of the JIT method was the company we discussed in class. The Georgia Pacific company that used the glue to compress the particles of wood together to create particleboard. The Georgia Pacific company had a good JIT plan they would have three bays in their production facility where tanker trucks could come and go from. The tankers would be hauling glue from a local glue manufacturer and there would be one tanker in a bay being unloaded right into the production line. In the mean time, there would be another truck in transit from the Glue Company. However the two companies were smart enough to place a third truck at the GP production facility as a backup incase something happened. This is a clear example of how the two companies are working together to reduce the cost of GP storing glue in a vet for the use in their production line. By reducing production and transportation costs companies such as GP are then able to pass the savings onto the consumers. In turn, the process of JIT is a great logistics strategy that can be implemented and have great returns as long as all parties involved work together to integrate all of the logistics activities involved in the business.
The Business plan on Krispy Kreme Financials Donuts Product Company
Krispy Kreme first traded its Shares in the NASDAQ market on April 5, 2000. Under the ticker symbol KID Krispy Kreme started trading on the NYSE on May 17, 2001. Krispy Kreme offers 3, 450, 000 shares for the public to grasp. Financial Outlook When reviewing the financial analysis of Krispy Kreme Doughnuts, Inc we have grown by leaps and bounds in the pass five years. Management has cut expenses ...
4. What constitutes and MRP system, and why would it be a good idea? Mention both types. The term MRP is a term that maybe interpreted in two forms. There is MRP I and II. MRP I stands for materials requirements planing, and MRP II stands for manufacturing resource planning. Materials requirement planning (MRP I) was the first of the two to come about in the 1960’s. MRP I is considered a computer-based production and inventory control system that attempts to minimize inventories while maintaining adequate materials for the companies production process (txt 203).
Based on this statement MRP I is easily correlated with the JIT method of inventory planning that I discussed in the previous essay. Both of the systems are trying to establish a method where the companies inventories are minimized, yet there is always an immediate supply of goods and services to complete the production process on a day to day basis. MRP I is said to be employed when one or more of the following conditions exist:
? when the demand for a certain product is not continuous or unstable during a firm’s normal operating cycle, ? when the demand for materials depends directly on the production of specific inventory items or finished products, ? when the purchasing department and its suppliers, as well as the manufacturers, have time to take other orders on a weekly basis (txt 203) The other form of MRP stands for manufacturing resource planning (MRP II).
The Business plan on Market Segmentation Products Service
Market Segmentation This document prepared and presented by Business Resource Software, Inc. Market Segmentation The purpose for segmenting a market is to allow your marketing / sales program to focus on the subset of prospects that are 'most likely' to purchase your offering. If done properly this will help to insure the highest return for your marketing / sales expenditures. Depending on whether ...
This is considered the newer or more updated form or MRP I. MRP II is a system that was established to compliment MRP I with the edition of some financial, marketing and purchasing aspects. The MRP II system includes all of the activities involved in the planning and control of production operations. It includes components such as the planning and production, resource requirement planning, master production scheduling, MRP I, the control of the shop floor and purchasing.
Both MRP I and II are a good system of however one may outweigh the benefits of the other. Some advantages of both are as follows. (txt 203/205) There are also disadvantages to the systems. With the MRP system, we tend to have some more costs that might not outweigh the benefits of adopting the system. With this system, our inventory levels will be depleted so the firms will have to purchase materials more often and in quantities much smaller than when they warehoused goods. This leads to higher transportation costs and sometimes it can lead to the loss of the volume discount. However, if the capital gain from the change in operations is greater than the loss from adopting the system then the MRP system is a good system for your firm. A good example would be the warren Communications Co. in our book that adopted the MRP system and made a first-year savings of $850,000 of which most came from the reduction if inventory and storage (txt 206).
Based on the information provided in the text the MRP systems are a good method of reducing inventories and creating a better more efficient personnel department. As I said earlier the MRP system plays along with the JIT method and creates a substantially large capital benefit to a firm if implemented correctly. 5. What should be considered in transportation choices? The transportation system of a firm is a very touchy subject to examine because it has such a large impact on a business. For many firms that transportation costs are the largest logistics cost in the whole process. Transportation is a service that moves a product or set of products from the point of origin to the destination. There are many different forms of transportation such as Motor carriers, Railroads, Third parties, Water transport, Air cargo and Pipelines and a combination of any (intermodal).
All of these modes of transportation play a large role in the act of the transportation process.
When deciding on transportation for your firm’s products there are many things that need to be taken in to consideration. The transportation costs and pricing or the products, which mode of transportation to use, the services offered, and the services offered by the companies. Based on the carrier types listed above, the transportation manager or whoever is in charge of shipping will determine which mode of transportation best fits the customer service requirements of the company. Some things that management will take in to consideration would be to select the transportation mode that best satisfies the following criteria. On-time pickups and deliveries, prompt responses to customer service enquiry’s, consistent shipping times, the most competitive rates and the ability to track shipments. The management will then review the information they collected and choose the mode of transportation that best meets the needs of their firms decision criteria (txt 253).
There are some points that we need to draw attention to about the decision process. As I briefly stated above things like the costs and customer service availability of transportation methods need addressing. Many factors lead to the price to ship a product. Just like the United States Postal Service, when you go to ship something they are going to want to know a bit about the contents of the package. Factors such as: density, stowability, ease or difficulty of handling, or the liability. The density of a product just refers to the weight of a product. Stowability of a product would refer to the ease at which a product is storable at the least amount of space. A good example would bee if shipping by motor coach you would like to be able to cube out the truck to be more efficient. The difficulty of handling a product is also related to the stowability of a product. A product that is more difficult to handle would be more costly to transport. Finally, the liability of a product refers to the importance of the contents in the shipment. A good example would be here again if a package you are shipping with UPS or the United States Postal Service is of any importance they want to know and they ask if it needs to be insured. When considering a mode of transportation there will always be many decisions to make. The best thing to do is weigh all options and try to think of the cost benefits or trade off involved in making the shipments with the different carriers. What kinds of services do the companies off and are they suitable to your needs. Remember the old saying the cheapest things are not always the best choice. Do what is best for the company and the consumers. The best way to retain customers is to establish a bond with them through good customer service. By management weighing out all of their options and choosing the best transportation mode for their shipments customers will keep doing business with your firm.
