“Interestingly,” Berman beamed, “there is no law in GAAP that limits the number of days’ inventory to any “norm,” and as such, the practice of increasing inventories beyond any “norm” goes unfettered.” Berman continued “managements sign-off on the inventories as being fairly valued, and the auditors pretty much rely on their word.” Berman believed that “from an investor’s perspective, it’s a game of musical chairs; you don’t want to be the last person standing. In other words, you don’t want to be an investor when sales slow and when mark-downs of the bloated inventory finally need to be taken to move the goods”.
Porter (2013) pointed out that an investor must be able to assess how well a company manages its inventory. The study found that the quicker inventory can be sold, the sooner the money can be available to buy more products. In the case study of the Walgreen Company’s managers or owners should consider some steps in the business decision model that help them make a decision of the company’s
Crocs, Inc. is a U.S. based shoe designer, manufacturer, and retailer that launched its business in 2002 selling Crocs™ brand casual plastic clogs with straps in a variety of solid, bright colors, Crocs™ introduced an innovative shoe made of a revolutionary material called Croslite™ technology which held unique characteristics that allowed it to perform on both land and in water. The company created its own fashion phenomenon and was given the name Crocs™ after the multi-environment, amphibious nature of Crocodiles in which they add fun by designing a crocodile face logo to build a light-hearted.
The company is looking to increase profitability and find a long-term solution to the inventory problem.
Company is facing a challenge of potentially higher inventory costs. Rising prices may further result in changes in customer behavior and preferences.
3 Improved lead time: The business process will be able to able to respond quickly with fewer delays. It also ensures timely availability of the product in the market.
This causes more trade debt, which means a higher the tax penalty. Furthermore, age of payables has increased from 98 to 154 days, nearly tripling over the last four years. This is damaging to the image and trustworthiness of the company, even causing issues from the bank trusting them with grant of loan. Having a large amount of inventory can conclude additional problem involving cost of capital, maintenance cost, aging inventory and the cost of space or storage. This therefore proves the poor management skills that are required to operate a booming and profitable business.
This case analysis will discuss Crocs, Inc. core competencies and explain how Croc should exploit these competencies in the future. There will be an examination of options and an identified recommended choice (i.e. further vertical integration, growth by acquisition, or growth by product extension). In addition, there will be a review of the alternatives that fit and do not fit within the company’s core competencies. Finally, there will be a recommendation on how Crocs should plan production and inventory in the future; while also addressing how the corporation’s gross margins will affect this decision and what could go wrong in the decision-making process.
The company started off producing 20,000 units of mountain bikes. We did not change the production quantity. Last year our forecast sales were 24,000 when we only sold 19,866; therefore we thought it would be best to leave production at 20,000 bikes. Having excess inventory, we concluded that 20,000 units should be enough considering our quality has not changed and our advertising will not increase the sales dramatically. Although we had the choice to produce as much as 30,000 units, we felt as though we did not have sufficient money to increase production. We were interested in allocating the money towards marketing as opposed to production. We realized that without awareness, no matter how many units we make, sales would be inefficient.
The inventory account has the greatest risk due to the numerous business and economic factors the affect AEO’s industry. As a specialty retailer, AEO must continue to maintain it’s competitive advantage in terms of forecasting customer trend preferences or risk producing out of date product styles that will lead to excess inventory.
With revenue from Crocs shoe sales reaching to $680 million in 2007, it is clear that the company has developed a successful strategy. Not all of the success can be contributed to the design of the product. Although their products were in high demand, there are more underlying factors that have paved the way for Crocs to be competitive in the shoe market. Crocs’ supply chain design and use of vertical integration revolutionized speed and quality of order fulfillment.
The company has been functioning well in terms of generating profit and demand so far. However, there will be a 20% increase in demand for the next month of operations as predicted by management, and the production and supply management's problems may come as a problem they can no longer afford.
The company’s creams inventory remains constant because it does not follow a trend in innovation and changes so often as the other products. The surplus in inventory is a big disadvantage since; last year’s products may not be in style this year in addition to the cost of storage. For all these reasons their cash flow is less in comparison with previous years causing that Luxor Cosmetics keeps increasing their bank loans, creating more debt, making it harder to pay out as 2011. In this particular situation the company could have either decrease its budgeted sales (productions) or increase its actual sales by improving more effective marketing strategy and research and development of its products in the markets. This way their inventory would decrease and their cash flow would increase. (Hopkins, 2009)
Reviewing Exhibit 1 it is indicative that each year their actual inventory ratio continued to increase as opposed to decreasing. Keeping inventory in stock is good for clients but bad for capital when it remains on the shelves and doesn’t sell as quickly as you are producing it.
SF does not want the product overproduced, provide timely reporting of product sales in order to avoid this problem. For this reason, the company's inventory becomes a serious problem.