Question

Discuss how and why companies should manage inventory levels, give an example?

Answer 1

The current business landscape is highly competitive, to a point that it has made it imperative for even the smallest companies to be mindful of inventory management in order to serve its supply chain decisions and build a better value chain as a result. Now, inventory management is essential because it makes sure we have the current quantity of items in stock for sale, for manufacturing, and for trade whenever we need it. It lets us maintain a rapport with the customers, maintaining their trust and goodwill and in the case of manufacturing, it lets us make sure that the capacity is never idle and a bottleneck does not occur because of a lack of raw materials. It is also crucial to recognize that holding a larger inventory is not the answer as well. The fact that we incur costs in golding an inventory in the form of storage space, transportation, etc, creates the understanding that we need to focus on both the low and the high end of the spectrum in order to reach a state of optimality.

Now, consider the example of Walmart, where, through the use of BIG DATA Analytics, Walmart is able to carry the items in stock that have the most demand, less stock for items that show lower or variable demand, and in doing so, reduce their inventory holding cost to the point that it has made the company the industry leader in pricing. The fact that inventory incurs the most cost is why we need to manage its levels to make sure we do not have less inventory to lose sales, or more inventory to incur higher stocking costs.

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