Imagine that you are the logistics manager of a firm supplying fashion clothes to the big stores. Being able to reliably assign costs to activities is a crucial management tool. However, the kind of transaction data traditionally used in logistics can present problems for activity-based costing.
1. What are the main factors affecting the optimal level of product availability in manufacturing organization? Give practical examples to show how technology can help the inventory manager to improve the balance between the costs of over- and under-stocking in the business.
2. What are the main difficulties involved in assigning meaningful costs to the activities in warehouses? How can these difficulties be overcome and cost savings achieved?
Factors Affecting the Optimal Level of Product Availability
There are various factors such as cost of overstocking and cost of under stocking of products, uncertainty in demand, backlogged stock out, etc that affect level of product availability in the market. Overstocking cost is related to the loss of remaining goods at the store after selling to the customers on demand. Under stocking cost includes the expected profits that could have earned by the company on availability of extra products (Zhang, 2007). In these conditions, companies are not capable to forecast actual demand of the goods by the customers. These both costs have an impact on optimal level of product availability in the market.
In order to reduce overstocking costs, sometimes, firms keep the goods in less numbers that reduces the optimal level of product availability in the market. On the other hand, for keeping low the under stocking cost, companies try to stock more to fulfill the unexpected demand of the goods by the customers (Goldsby & Martichenko, 2005). It leads to increase in the optimal level of product availability in the market. Uncertainty in demand is responsible for changing in level of overstocking and under stocking.
Sudden increase or decrease in demand creates confusion in among manufacturers and they do not forecast the future demand of the products. Therefore, their production level and supply of products differ with the customers' demand that affects optimum level of product availability for the customers. Accumulation of stock by the companies can also affect the availability of the products in the market (Wisner, Tan & Leong, 2008). It is because firms stop the supply of products on higher demand in order to earn more profits that reduces the product availability in the market.
Role of Technology in Balancing Stock Level
Technology plays an important role to establish a balance between overstocking and under stocking cost. In order to improve ...
The inventory, transportation and warehousing are examined.