Introduction
Practical use of inventory management is among the aspects at the core of the supply chain management success. The management of different inventories such as raw material, finished goods, partner inventories, work—in the process, among others rests at the demand and supply intersection. However, the inventory management perhaps has the long way to go. The relationship between the inventory management and the corporate cash flow generation was understood recently and has currently received a broad interest level (Dekker et al., 2013). Now, firms can use supply chain to improve business performance by using the supply chain to generate more cash flow than the competitors. This enables them to have higher multiples of stock prices even when growth rates and earnings per share are similar. For instance, Dell Company works toward eliminating the middlemen as well as the distributors to have more understanding of the customers’ needs and wants that are later passed to the suppliers (Blanchard, 2010). This reduced Dell's component of inventory from 70 days to 20 days and the lead time from 40 to 10 days in average. The supply chain seeks to integrate all internal and external aspects to provide product consumers into the continuous and fast-flowing way. This paper addresses different was on how the organization uses inventory in the supply chains to foster business performance in companies such as Dell, UPS, IBM among others.
Current trends in Supply Chain Management
Currently, the supply chain of many companies such as Dell and United Parcel Service of America (UPS) is optimized to integrate the supply chains of both suppliers and customers through inventory management and planning as well as production planning. The traditional barriers in the company are broken down to ensure smooth flow of material and information. However, the objectives of improved services are coequal to cost reduction. However, for the company to flourish the current customers’-driven marketplaces it should show good returns and provide excellent services to the shareholders (Tayur et al., 2012). In current supply chain management, the product supply areas should be reengineered to a business process, rather than to the functional model. The coordinated planning and electronic exchange of information and inventory status in Dell are brought into the supply chain.
Direct Business Model in Dell, UPS, and Heineken
Dell Company works toward reducing both inventory and delivery lead-times. For instance, in 2004, the turnover was 107 times compared to 8.5 times and 17.5 times at HP and IBM respectively. This shows that Dell does not have to discount its products since obsolete, and new products are introduced two moths faster than potential competitors since there are no inventories to sell before the introduction of new products. The direct customer interface helps the company to link the products and services innovations to the needs of the customers. In Dell, goods and information flow through a variety of partners and relationships across different regions. However, it collaborates mutually with the suppliers as well as bases decisions from the procurement department on cost, quality performance flexibility, and services. According to the chief technology offer at Dell, Kevin Kettler, the functions, product features are crucial, but it is also important to know if the suppliers can confirm quality as well as volume requirement (Blanchard, 2010).
Heineken found that the salespersons were more useful than the direct model. This is because it was not dealing with all calls, and therefore it had to check the inventory to solve bad forecasting problems and change the processing orders. Nevertheless, the best thing to do was to concentrate on the excellent services to the customers and to help the distributors to perform better. Notably, doing things that decrease the inventory lead time increases the accuracy of the market and performance forecasting. The use of automated systems as well as electronic communication to replace the rapid movement of elections is applied. The key economic benefits of inventory in Heineken are a reduction of the overall costs of production and distribution. For instance, if the company uses 20$ million on the stock, it will cost the company about $6 million less per year due to insurance, obsolescent and opportunity costs. On the other hand, the amount of inventory may be reduced up to $10 million enabling the firm to save over $3 million hence maximizing the profit.
Purposes of Inventory Management in Supply Chain
All businesses keep inventory in the supply chain management for reasons that boost the overall performance of the business. 1. The maintenance of operations' independence: the supply materials in companies such as Del and IBM allows for the flexibility of the center services. For instance, there are different costs of making each new setup of production. In Dell, this inventory allows the management to reduce the number of setups in computer production. On the other hand, the independence in the workstations is desirable to assemble production and distribution lines. However, the time taken to carry out identical invention varies from one unit to the next unit. It is, therefore, important to have the cushion of different parts in the workstations to compensate the longer performance time with shorter execution time.
Another key purpose of the invention is to occupy variations in the demand for the product. If the request for the new product is known, it is perhaps possible and economical to produce the products that meet the demand. For, an instance in IBM, the investigation ifs first done by the supply chain management team in collaboration with the marketing team to gather the request of customers. This has contributed to the improved performance of the company since the products are aligned to the customers' needs and wants (Krajewski, Ritzman, and Malhotra, 2013). Contrary, if the demand is not known, then buffer or safety stock should be designed to cover the variation.
The inventory management in supply chain assists in ensuring that there is flexibility in production scheduling. Dell puts more effort to separate the procurement activities from price negotiations and sourcing aspects managed by a team in Texas. The inventory of stock relieves pressure on the production system to ensure improved output and distribution performance. This may perhaps result in longer lead time, which allows for the production planning ensuring smoother flow as well as reduced operating costs (Christopher and Holweg, 2011).
The inventory also safeguards the variation in raw material delivery time. When UPS order material from a vendor, delays may occur due to normal variation in shipping time, unexpected strike at the supplier's plant or due to shortage of raw materials at the vendor's firm. To camp this, the company enhances the communication with its supplies by use of electronic communication method to ensure smooth production process (Butner, 2010).
UPS Company also takes the advantage of the economic purchase. There are costs of placing the order such as phone calls, labor, typing, and postage, among others. Conceivably, the larger the order is, the fewer the orders that need to be written. Notably, shipping costs are a lover on the larger orders, for this reason, companies work toward maximizing its sales through supply chain management inventory that allows for bulk shipment (Shepherd and Günter, 2010).
Transport Operating Modeling
IBM uses the second model decision support system (DSS) to calculate the transportation costs. The possible transportation problem is solved in every day of the week. The model first calculates the number of the orders that have been shipped from Monday to Friday. According to Hugos (2011), the shipping amount is deducted from delivery phase and the transit time. Later, the demand is considered to be the same during the planning horizon if the products are the same. This makes it possible to group the orders according to the shipping dates and help in solving transportation problems. The modeling of the transport operations in IBM builds a network in which the flow of products being shipped is managed; this stabilizes supply chain of the company, hence increasing overall sales. On the other hand, in Dell, during the processing of the orders, orders are received by telephone, email, or even downloaded from the company's website within 15 minutes. At this point, order credit, as well as configuration, can be checked. Later, orders are sending to the order management system where the review of the component inventory is used to generate the requests for materials and send them to the relevant suppliers (Hugos, 2011).
Delivery Speed and Reliability
Dell and UPS use the daily performance measure and figures to evaluate suppliers against, quality, price, and the delivery speed. In this case, the performance feedback, as well as future expectations of the company, is outlined during the quarterly meetings of suppliers. The suppliers are awarded based on the performance and the percentage of the company's purchase in the next quarter. This is a key motivation factor to the suppliers to provide high-quality products and services to the enterprise. In Dell, abut thirty o fits 250 suppliers are used to provide 75% of the overall demand of about 3,500 components, and the awards are given to the best supplier based on the previous quarter.
Supply Chain Inventory and Competition
UPS has been successful in the delivery of parcel since 2005, its global shipment of the parcel has been enhanced by the inventory systems that provide the organizational structure and the operating policies that maintain and controls all equipment purchased. The single- period inventory model enables the company to consider potential profit and loss of stocking too many papers or too few parcels (Monczka et al., 2015). This also helps the company to avoid overbooking of the airline flights and therefore improving the transportation costs reduction operations.
On the other hand, Dell Company had achieved by 2006. The personal computer shipment had grown in the previous seven years by about 38 million units. The completion pressure from other computer based companies such as IBM and HP caused the decline in the market share (Sarac, Absi, and Dauzère-Pérès, 2010). Companies such as HP focused on product innovation, product outsourcing and selling direct and also selling through retailers. At the time, customers could order the products through HP site although mass orders came from the retailer through intranet ordering. Nevertheless, regardless of Dell having low inventory and costs of distribution, it exhibits high cost in support of customers' services request, orders, and queries. This boosts the customers’ relations with the company, thus increasing the number of potential clients. However, Dell's CEO, Michael Dell, in 2007 put in place an executive team to boost the global operations of the organization by consolidating manufacturing, supply chain and procurement activities of the company. This integration of supply chains eliminated the overlapping of the activities and opened an opportunity to set up new plants in Brazil, Poland, and India. The setting of new plants increased the market share of Dell (Wisner, Tan and Leong, 2015).
Conclusion
In conclusion, inventories need to be managed differently to reduce the cost advantage. However, companies should not jump from direct to channel supply chain model, by doing so, the company cannot expect soft landing or enjoy significant market share. Jumping from direct to the canal based model caused many problems for Dell Company in the 1990s (Butner, 2010). Again, when good cross the borders, considerations such as inventory costs and fulfillment speed get more complicated, this creates more responsibility for the company to further up its supply chain inventory management. Well established supply chain solves problems such as lack of visibility in distributions, delivery delays and complex transportation networks that improve the overall performance of firms.
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