Once Inventory Is Stratified as a, B, C, D, X and Y Items, the Classification Aids in Making Several Business Decisions. How Does Inventory Stratification Influence

941 WordsJan 20, 20134 Pages
Once inventory is stratified as A, B, C, D, X and Y items, the classification aids in making several business decisions. How does inventory stratification influence i. Supplier Management? ii. Inventory Management? iii. Customer Management? iv. Warehouse Management? v. Sales Management? vi. Pricing Management? vii. Marketing Management? viii. Reinvestment Decisions? Creating shareholder value is the ultimate goal of all businesses, so all processes should be directly tied to it.(1) The wholesale distributor’s core business process framework is a collection of process groups called 7S - source, stock, sell, ship, supply chain planning, and support services. Linking these process…show more content…
This knowledge allows sourcing through the subgroup supplier management to eliminate suppliers who only provide C and D items finding the right number of suppliers for the organization. Eliminating C and D items reduces inventory and increases GMROII. You now have the option of reinvesting the resulting capital into A and B items, paying back loans, or other business opportunities. In the debt reduction case, the impact can be readily seen on the balance sheet. The investment in A items leads to further sales opportunities. The reinvestments and its associated expected inventory turns will help in calculating additional revenue and resulting improvement in EBITDA. Reinvestments can also be for capital purchases to position the business for future growth. Inventory stratification also affects the ship and store segments of the 7S process group. With the knowledge that can be obtained from the data slow moving items can be removed from branch inventory and a Regional Distribution Center (RDC) may be implemented. This allows the branches to carry more A or B items, or simply to reduce their inventory cost. RDC’s are usually able to operate with less inventory by sales volume. Labor expense is also reduced driving profitability to the shareholders. Inventory stratification is the primary driver for sales forecast and helps populate fill rates by rank. Forecasted demand combined with lead time and safety

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