Question

What are the advantages of retailers sharing inventory? For Instance, suppose you go to a car dealer to find a blue model, and he or she does not have that model in stock. Typically, he or she will obtain the model from another local dealer. What are the disadvantages to the retailer?

Answer 1

There are many advantages if the retailers share the inventory. The first advantage is the relatively less investment in inventory on a per retailer basis and it frees the cash that can be used for other productive purposes. The second advantage is the maintenance of inventory with a large number and variety of products. It increases the ability to deliver and satisfy the consumers. The third advantage is the reduction in the risk of stock out and there is an increased level of serviceability at the retailer's end. It also increases the service level of the retailers. The fourth advantage is the close network development among the retailers who complement each other.

Though there are some disadvantages also. The first disadvantage is the loss of customers to the competitor retailer if there is increased occurrences of stock out. The second disadvantage is loss of profit margin as the retailer having the product, will also take his cut. The third disadvantage is the inability of the retailers to cater the increased level of demand, due to the lack of a sufficient level of inventory at their end. Besides, there can be growing competition among the retailers, amid commitment of cooperation. It brings mistrust upon each other.