Inventory Management in Supply Chain
Inventory Management in Supply Chain
Inventory management
Inventory management is about specifying the percentage and shape of the stock goods. Inventory management is necessary on several places to keep the orders, store them and use it for production use. Inventory is the asset of the company and it remains an asset until it is sold and cleared (Salvo et al, 2002).
Inventory system
It is a system in which a company check over its stock. The activity done by the employees to check the company’s stock is known as inventory system. Inventory control majorly refers to logistics, operations management and supply chain management (Salvo et al, 2002).
Dell Inc., founded by Michael Dell, is privately owned American international computer Technology Corporation. It is involved in developing, selling and maintenance of the computers and the related equipment and goods. By global market share estimation, Dell is the largest of all companies dealing in computer systems, competing in the business, government, education and consumer markets. Zara fast fashion is a Spanish brand. It was founded in 1975. Whereas, Zara fast fashion is the world’s largest retailer of apparel. It has its franchises in 86 different countries which include Asia, Europe, Middle East and America. Here the question arises why this brand owns so much fame and customer loyalty in such a limited period? The answer to this question is Zara fast fashion is known for its excellence in material like jewelry, clothes, and accessories. They provide them unique and latest designs so frequently that no other retailer is succeeded in doing so. Their supply chain management and control over inventory is remarkable. They said that they brought the new designs on the outlet in just two weeks. From this, there’s no doubt about their inventory control system and supply management system. According to the survey, Zara fast holds an inventory having a worth of 6 days as compared to its other competitors which hold it for approximately 52 days in case of Spanish (Tiplady, 2006).
Product line of dell includes (Kapuscinski et al, 2004)
Desktop computers
Notebook computers
Network servers
Storage products
Network switches
Computer peripherals
Printers
Cameras
Whereas, Zara fast fashion deal in accessories, clothes, apparels etc.
Inventory Management system
Dell is well known for its revolution in inventory management and best inventory control system which incurs least inventory costs thus making it prominent for having the best supply chain management system. The supply chain is a business activity that is adopted to give effective and best service to the customers and by integrating all the features involved from the suppliers to the consumers including the transport, wholesalers and retailers as well. Certain models like sales to order and build to order, Dell is involved in making of ready to available computers and customized computers as well. Dell is founded by the concept of bypassing retailers and supplying the personal computers to the customers directly consequently reducing the costs of the additional stage in the supply chain as well as avoiding the delays (Lee, 2004).
The tremendous growth in the computer industry for the past few years has caused the firms to face many challenges. But Dell, due to its supply chain management overcame all these challenges.
Holding inventory becomes a huge liability for such companies as there is a rapid change in technology and so Dell carries very little inventory. It focuses more on speeding components and products through the supply chain.
Dell does not need to sell its old products by offering any discounts as it does not have any such old products because it does not keep inventory. It manufactures the products on the time of order and in this way it provides it product to the market faster as compared to its competitors (Davis, 2010).
Dell has a closer relationship with its suppliers of the components of its product line which enables it to cut off R & D (research and development) costs as it does not need to specialize in manufacturing every component of its product. Due to the rapid advancement in technology, every component of every product needs to be updated which increases costs but Dell due to it's advanced and efficient supply chain management system has overcome this challenge (Simchi-Levi, 2005).
Dell has a system in which suppliers decide when and how much inventory should be ordered. Suppliers can make good ordering decisions through forecasts shared by Dell’s marketing department once per month. These forecasts suggest that how many orders are going to be placed and this helps the suppliers to decide how much inventory is needed to meet these orders. This system is known as a vendor-managed-inventory arrangement (Christopher, 2005).
Zara has a motto “Inventory= death.” They do not fill up their inventories till the mouth. They manufacture the limited products and buy the raw material from their suppliers in a limited quantity. They do not believe in keeping the products in their inventory. They manufacture only that number of product which they are in need of and then they supply to their different retail outlets via shipments. They first determine how much inventory are they in need of with the help of inventory optimization model. When it confirmed them that this much amount is required they purchase the raw material and make the products, and they are exclusively famous for bringing the new trends in the market after just two weeks. They do not keep the inventory too much because of another reason as well. This reason is that they want limited stock in their outlets as it is the matter of their brand. Limited stock will earn them more brand equity and customer’s loyalty (Ghemawat, Nueno and Dailey, 2003).
Inventory control and Profit Maximization
The inventory management has become an important factor for them, which has sustained a competitive advantage among all the computer technology manufacturing companies. The supply chain of Dell is very effective that it is significant in the market for the provision of the desired product. Its cost is low as compared to the other companies, so it helps them in earning the great revenues. Dell has an inventory system which operates on only six days of inventory known as a just-in-time inventory system. This inventory system has made Dell able to obtain higher profit margins. As Dell’s inventory system has only six days cycle, this cuts down many of the costs such as the rental cost of warehouses, salaries and wages for people employed to track and maintain inventory and hence to avoid the use of obsolete technology (Michalski, 2008).
The most important and dominant theme in the supply chain is the better combination of planning and its implementation. Supply chain integration is very important for Dell, as described above and thus, has made it one of the top PCs manufacturing company. The supply chain has more effect on inventory growth rate than sales growth rate. Supply chain reduces the inventory which cuts off many of the costs and thus increases the profits. Due to supply chain inventories have been drastically reduced via extensive sharing of information and reducing the risk of technological outmodedness, and the cost of materials are reduced to more than 50 percent. Although Dell has a reduced inventory, even then it has a competitive advantage of delivering the product in lesser time as compared to its rivals because the time for delivering the product is also quite short. Thus, inventory management in the supply chain can help organizations to drive their performances as discussed with the help of the example of Dell (Michalski, 2008, p. 88).
The Zara fast fashion manufactures its products in its industry which is situated in Spain. It keeps its inventory in its house. They believe that keeping their inventory close to the manufacturing area helps them in creating the new designs. They are known as fashion tenders. According to the research, it was found that they do not spend their money on advertisements. Instead, they would be more likely to open the new outlets (Ghemawat, Nueno and Dailey, 2003). The increase in the number of outlets demands more inventory to be prepared. They buy the raw material readily from their suppliers and manufacture the products in the duration of 1 week. They set this duration. It is the symbol of excellence. The entire name which they have made yet is just because of the efficiency of bringing the new products to the market (Chen and Paulraj, 2004).
Zara fast fashion deals with the multiple of the products. It requires a large amount of raw material for the manufacturing of the items. The main purpose of keeping the less inventory and manufacturing them, as fast as they can and supply to the outlets, is that they should bear less cost of keeping the inventory in their warehouses. As it has already mentioned that they have around 86 retail outlets across the globe, so they are required to manufacture the prodigious amount of inventory. They manufacture their products only in Spain and supply them to the other countries via shipment (Ghemawat, Nueno and Dailey, 2003). To keep the entire inventory in their store would result in an increase of the cost. They get the raw material from their suppliers, manufacture the products and without keeping their inventory in their stores for a longer period, send to the outlets. If they keep the inventory in their stock, then it would result in an increase of the cost (Salvo et al, 2002).
Increase in Sales and revenues
The performance of the company entirely depends on the company’s sales and revenues. The larger the number of sale the larger will be the revenues. The company gets the larger revenues if it efficient in inventory management. The Zara fast fashion and Dell have the best inventory management system. Its sales are outstanding. It does not keep the stock for a long time. According to, to the survey the Zara Soft has many loyal suppliers who supply them the raw material in time. After getting that raw material, they manufacture the products and convert them into the finished goods. The finished goods are then ready to supply to the outlets (Ghemawat, Nueno and Dailey, 2003). They have a lot of designers who indulge their selves in making the new designs. These new designs are frequently brought into the market. The inventory management done by the Zara fast is quite noteworthy (Berry, Whybark and Jacobs, 2005). And so do the Dell incorporation because of its wide range of product line and efficient inventory management system it keeps on increasing its sales and revenues.
Conclusion
The better the management of the inventory and its supply to the outlet the better will be the performance of the business in earning the great profits and revenues. The Zara fast is performing well in the market as it 86 retail outlets depicts its performance very well. Dell and Zara are performing outstanding in the market and it only because of best inventory management system. They both manage their inventory in such a way that the inventory does not stay in their house for a long period. As, soon as they receive the raw material from their efficient suppliers, the manufacturing department converts it into the finished goods. The goods then supplied to the retail outlets. They supply the inventory twice a week to all of its retail outlets across the globe. The greater will be the supply of the inventory to the outlets; greater will be the sales of the product. A large number of sales automatically earn huge revenues and profits which ultimately becomes the business success. The company’s performance increases if they are efficient in managing their inventory department.
References
Berry, W.L., Whybark, D.C. and Jacobs, F.R., 2005. Manufacturing planning and control for supply chain management. New York: McGraw-Hill/Irwin.
Chen, I.J. and Paulraj, A., 2004. Towards a theory of supply chain management: the constructs and measurements. Journal of operations management, 22(2), pp.119-150.
Christopher, M., 2005. Logistics and supply chain management: creating value-added networks. Pearson education.
Davis, M., 2010. Case study for supply chain leaders: Dell's transformative journey through supply chain segmentation. Gartner Research ID Number G,208603.
Ghemawat, P., Nueno, J.L. and Dailey, M., 2003. ZARA: Fast fashion (pp. 1-35). Boston, MA: Harvard Business School.
Kapuscinski, R., Zhang, R.Q., Carbonneau, P., Moore, R. and Reeves, B., 2004. Inventory decisions in Dell's supply chain. Interfaces, 34(3), pp.191-205.
Lee, H.L., 2004. The triple-A supply chain. Harvard business review, 82(10), pp.102-113.
Michalski, G., 2008. Corporate inventory management with value maximization in view. ZEMEDELSKA EKONOMIKA-PRAHA-, 54(5), p.187.
Michalski, G., 2008. Value-based inventory management. Value-Based Inventory Management, journal of Economic Forecasting, 9(1), pp.82-90.
Salvo, J.J., Mackenzie, P.D., Bennett, J.S., Relyea, H.A. and Thomas, A.M.I., General Electric Company, 2002. Inventory management system and method. U.S. Patent 6,341,271.
Simchi-Levi, D., 2005. Designing and managing the supply chain. Mcgraw-Hill College.
Tiplady, R., 2006. Zara: Taking the lead in fast-fashion. Business Week, 4.
