Practise analysing inventory levels, JIT and supply chains through cost, continuity and responsiveness, then evaluating the approach that best fits the organisation's operations.
Samira's Whiteboards (SW)
Samira left school at the age of 18 in country H . She had a small amount of savings and an idea to create a flexible, removable and reusable whiteboard. Samira created a prototype and received small orders from local retailers.
A local manufacturer batch produces stock when required. There is a two-week lead time for a minimum order of 500 units. Samira started to sell her whiteboards on her website and at trade shows. She has been trading for seven months. She has good cashflow but little working capital as production costs are high.
Samira has heard that OS, a large business that sells office equipment, is planning to sell their own version of Samira's whiteboard. She is keen to increase production quickly to take advantage of being first to market. However, Samira's manufacturer cannot supply enough product to meet the growth in potential demand for whiteboards.
Fig. 1.1 shows an inventory control chart for the first seven months of trade.
Lara, a venture capitalist with experience of manufacturing, has approached Samira about making an investment. She would invest $ 100000 to build a local mass production facility for SW. The facility would have a maximum output of 50000 units per month. Lara wants to own 40% of the business.
Explain one cost for SW of holding inventory.
Cobblestone Shoes (CS)
Yazeem is a highly skilled shoemaker. He opened CS in 1975, as a sole trader, to design and repair shoes. When Yazeem set up CS the main target market was professional people who wanted shoes to wear to work or to dress smartly. He produced the shoes using batch production and sold them in his own shop. Each design of shoe was made in a range of sizes and colours.
Abir has suggested that CS should adopt a just in time (JIT) approach to inventory management. By using JIT, she argues, CS would be able to increase its working capital and avoid having money tied up in inventory that might not be used or sold. CS currently has a large number of shoes on display in the shop. There is also a large amount of their
Recently there has a been an increase in low-priced shoes produced for the mass market, which has reduced Yazeem's sales of new shoes. It has also reduced the demand for shoe repairs.
Yazeem's daughter, Abir, is keen to take over the running of CS. She has been fully trained in making shoes and feels that it is time for Yazeem to retire.
Abir thinks that the business should be targeting niche markets. She would like to design and produce unique shoes and use price skimming to increase the profitability of the business.
Abir is also concerned about the contribution made on each batch of shoes. Table 2.1 shows some break-even data for a recent batch of shoes.
Table 2.1 Break-even data about a recent batch of shoes
main raw material, which is leather and must be kept in a climate-controlled storage area.
Abir has already found a new local supplier which is happy to deliver inventory as required.
Analyse two disadvantages to CS of adopting a JIT approach to inventory management.
'Supply Chain Management is the most important operations factor for the success of a large internet retailer.'
Evaluate this view.