It Is Not A Question Whether An Inventory Is Over Or Short

851 WordsJan 10, 20174 Pages
It is not a question whether an inventory is over or short; if needed to be questioned it should be more like what the best inventory par level is. An inventory is an asset for any company and represents the investment that is limited until the items sell. It is important to identify the full cost of inventory, as highlighted by Christopher (2005 cited in Baker 2007). When calculating the correct level of inventory, one should consider and try to minimize logistics costs as: warehousing costs, insurance costs, ordering and receiving costs. It should be calculated based on forecasts and should be replenished to satisfy forecasted demand by focusing on the information of previous sales. According to Lee and Billington (1992 cited in Baker…show more content…
When the inventory level falls below a certain level, the inventory is replenished (Levi and Kaminsky, 2003 cited in Salam, Panahifar, Byrne 2016). Having additional inventory will increase product availability but in the same time will increase the inventory cost. The secret for a proper inventory management lies in knowing your customers and understanding their needs in a way that will benefit both the company and the customer. Tesco achieved this with the help of the Clubcard, a loyalty program with the help of which the retailer claims to know its clients individually (Humby, Hunt and Phillips, 2008). 1. Vendor Managed Inventory To react more accurately to customers demand and keep inventory to a minimum, Tesco adopted a vendor-managed inventory (VMI) also known as continuous replenishment. VMI is an important co-operation initiative where the supplier (vendor) is authorised to manage inventories at customer locations (Waller et al. 1999, Cetinkaya and Lee 2000 cited in Ståhl Elevander, Sarpola and Mattsson). The purpose of this coordination between the supplier and the retailer is to increase sales and to increase profit and minimize inventory costs, being cautious with under stocking as well. Holding just the right level of product gives Tesco a huge competitive advantage and because of the VMI relationship where the supplier is responsible of managing inventory, Tesco saves inventory management
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