The following discussion based on Gabriel Kahn, "Made to Measure: Invisible Supplier Has Penney's Shirts All Buttoned Up, " Wall Street Journal, September 11, 2003, describes a new inventory system used by J.C. Penney:
"In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style. The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney's shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailer's warehouses and corporate decision makers."
a) Discuss how this illustrates the concept of the opportunity cost of capital.
b) How does this innovation also help in demand management?
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The concept of opportunity cost of capital is illustrated in the sense that opportunity cost of holding a large amount of inventory was much higher than the benefits derived from ...
Solution Summary
a) Discuss how this illustrates the concept of the opportunity cost of capital.
b) How does this innovation also help in demand management?
... the IRRs IRR 1 comes to 21.13% IRR 2 comes to 78.87% The range of opportunity cost of capital is 21.13% and 78.87% over which extra shift should work. ...
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... The opportunity cost is the incremental cash flow that would be obtained by selling the plot of land. Cash flow on account of sale= $ 500,000 Capital Gain ...
