Question

Will Safeway or Loblaws have the higher inventory level if both have identical cost structure and equal average demand. Safeway has a higher standard deviation in forecast than Walmart, please detail arguments and your reasoning clearly .

Answer 1

Safeway is an American supermarket chain with over 250,000 employees and 900 stores where the Loblaws is a Canadian supermarket chain with a limited number of stores. Even though the cost structure or the demand is equal, the inventory level will be high for Safeway due to the below reasons.

Inventory management is an essential factor for every organization to keep the stock available at any time. In the current scenario, the scarcity of food and other things is the best example of the lack of efficient inventory management.

In the above-said case, why the inventory level maintenance differs for Safeway and Loblaws is due to various factors. Inventory is managed by evaluating several factors. So only cost and the demand will not determine the inventory level.

The factors affecting inventory level maintenance.

1. Of course, financial factors do affect inventory management.

2. Secondly, Suppliers - An unreliable or unpredictable supplier can have huge knock-on effects for inventory control. It can be a good idea to ensure you have a reliable back up supplier to prevent product shortages or delays in the manufacturing process.

3. Then the Lead time - Lead time is the time it takes from the moment an item is ordered to the moment it arrives.

Since Safeway has too many stores, it always oversees and maintain a high level of inventory.

4. Inventory management must take into consideration the product which they are dealing with. Product may be perishable or non-perishable.

5. Predictions - Future is unseen, so to make the battle-ready, many companies keep the inventory ready if there is any sudden cause of action.

6. To avoid any Stock out of the situation, companies should keep an extra amount of inventory.

Since the Safeway is a highly flourished supermarket, they need to keep buffer stocks and also the salable products at the same time. Not only that, they have to maintain a high inventory level for the smooth functioning of the production where Loblaw with minimum number of stores doesn't have to keep it much.