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Competitiveness and Inventory Management or Safety Stock

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Competitiveness and Inventory Management

To be competitive, many fast-food chains expanded their menus to include a wider range of foods. Although contributing to competitiveness, this has added to the complexity of operations, including inventory management. In what ways did the expansion of menu offerings create a problem for inventory management? One form of inventory is safety stock, which is primarily carried by companies to ensure a variety of products is available at all times. However, safety stock ties up capital and hinders cash flow.

As a manager, what recommendations could you provide to reduce inventories as it relates to safety stock?
What parameters would lead you to believe that (a) large safety stock, (b) small safety stock, and (c) zero safety stock would be advantageous for the organization? Be sure to provide examples and data in support.

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Solution Preview

As a manager, I would recommend the following techniques to scale down inventories as it relates to safety stock:
Decrease Supplier Lead Time: This can be achieved by negotiating speedy delivery of a product with suppliers that can expedite speedy restocking of a product or merchandise. This has a higher degree of certainty that a fewer inventory would be carried and would reduce the short-term costs of carrying the inventory. Consequently, this would reduce the long-term liability of retaining supplies that become excessive or outmoded. For example, Toyota adequately manufacturers and delivers its customers' automotive orders by using make to order (MTO), a process of negotiating suppliers that can quickly deliver products to Toyota's manufacturing plants (Jacobs & Chase, 2011). MTO helps Toyota in eliminating surplus or shortage. Consequently, Toyota can produce its customers' orders in a fast, qualitative, and cost-saving manner.

Eradicating Obsolete Inventory: This can be attained by identifying inventory item(s) that have not been purchased in 12 successive months. In essence, this would indicate that the item(s) are no longer in demand because of market trends. An organization needs to be very observant of each of its ...

Solution Summary

The strategies an organization can utilize to manage its inventory levels are examined.

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