Inventory Management - Term Paper Example

 Rising Consumer Power Consumerism is a phenomenon where there exists a never ending and never satisfying hunger for the consumption of goods and services. Economists term consumerism as the dynamics or symbol of a progressive and booming economy. The basic concept in economics is when consumption, that is the purchase of goods and services in an economy, is increasing then the economy is on the verge of a boom and if things are the other way round than the economy is in recession. (Jacobs 2010) There is sound economics basis behind the concept of consumer culture. In economics terms consumer culture is synonymous to market culture. In such a situation the prices of commodities are determined solely through demand and supply factors. To understand this we can simply say that when demand of a particular commodity is high in the market than its price will go up., but if supply exceeds the demand of the commodity in the market than the price of the particular commodity will go down automatically. In such a case the choices or buying decisions that consumers take independently, serve to define the structure of the market. (Jacobs 2010) The marketers and entrepreneurs have used this concept of consumer culture greatly to their advantage. Consumer culture has provided marketers and entrepreneurs, means to understand the needs and wants of a particular market better and then cater these needs and wants in a profitable manner. We can understand this with the help of an example. Supposing you have to travel o a particular country where your in-laws are living, you will find out about the culture of that country such as local customs, the way they dress, local cuisine and common linguistics etc. so once you enter that country you will be able to interact with the locals in an improved manner and they would be pleased to host you. In a similar manner when entrepreneurs are about to take on a particular market segment, they study the consumer culture of that market. Studying the consumer culture includes looking at the trends of the market in terms of profitability, analyzing demand, consumer behavior, the satisfied and unsatisfied needs and wants of the market. Once these rules are learnt than the marketers chip in and play their game. (Birchal 2010) The Need for Inventory Management The entrepreneurs, having studied the market trends and being well acquainted with the consumer culture, can determine certain variables that are almost impossible to discover otherwise. The entrepreneurs can determine future demand of a particular product that they are selling to a particular segment. Having talked about consumer culture we must not forget to mention the changes that have taken place in the market over the period of time. With the introduction of more and more products by the companies and entrance of giant companies that offer products that serve to cater to similar needs and target the same set of consumers have actually helped to make the market place a battle field. Today customers have so many options and choices to choose from. In fact making a buying decision has become a Herculean and specialized task for the customer. Where on one hand intricacies at the end of consumer have increased then on the other the customer has become very powerful as well, and one cannot repudiate the fact that products and brands that do not meet customer expectations are either ousted or kicked out of the market and become forgotten history. Here inventory management becomes a key concept that needs to be discussed and highlighted to limelight. As we talked about the concepts of “customer expectations” and “consumer culture” so we also need to understand that they are very closely linked to inventory management. Finding the product on the shelf is one of the most significant customer expectations, significant yet basic. “Finding the product on the shelf” implies that the product must be available to the customer at the right place in the right quantity at the right time. This is where Inventory management comes into play. Inventory management has gained more and more significance in organizations during the past decade and this is because of the consumer expectations and strong consumer culture that has risen globally. Customer Enigma and The Way Out! When situation is perverse as per the customer then this could prove to be disastrous not only for the short run but more importantly for the longer period of time. If a product is not available to the customer on time then this does not only provides impetus to the customer to look for an alternative product but on many occasions it tends to irritate the customer and will develop hostile feelings against the company in other words poor inventory management gives qualms to the customers. Miffing of customers is a very abject phenomenon that could prove to be abysmal and lethal for the growth and sustainability of the organization in the market. With things moving at brisk pace in every industry even one mistake can ravage a decades old player in the industry without giving any chances to revamp or rectify the errors committed. Satisfying customers is one of the fundamentals that an organizations needs to be careful of however with tight macroeconomic conditions looming on the heads of economies an organization also needs to cut down the costs to exceptional levels to remain profitable or at least break even if not more. Carrying loads of inventory and holding it for longer periods also carry huge costs. But any how every company has to hold some level of inventory that will be injected into the market shelves as and when required. So the question that arises here is “how much to carry?” There is no certain answer to this question, every day the demand of products changes. Moreover a retailer or a wholesaler will not keep our products on the shelves for too long so we need to make arrangements on the marketing and communications side that ensure that the buying behavior is triggered in the customers so that our products are touted in the market on a regular basis. A company that needs to become the top of the mind company for its consumers must lay stark inventory management plans that are based on industry dynamics and reliable data obtained from various sources. Indeed managing inventory requires immense amounts of vigilance. However this vigilance is not to be maintained by the producer alone as this is not pragmatic and on the other hand there are several parties involved in the value chain of every product. The producer, supplier, wholesaler and retailer all need to collaborate with one another and share information regarding the level of inventory that each hold at every stage in the entire process. This is being done and practiced in almost every company today. For sharing information companies spend hundreds of thousands of dollars every year to develop and upgrade their information sharing systems that keep all the involved players in the cycle onboard with minute to minute information regarding inventory levels. This keeps everyone a breast of the levels of inventory required to be maintained at any particular time in the chain. Intercompany Collaboration Intercompany collaboration has also become very important when it comes to inventory management. For example Mc Donald’s in Japan have been utililizing the technological giants like Cisco, FeliCa to get rid of all the communication and intercompany collaboration barriers and to deliver the best possible services to its customers. The supply chain is synchronized and linked to different boundaries of the organization that are directly or indirectly dependent upon the supply chain. These factors include transportation, the outlets, the customers etc. This enable Mc Donald’s to have a perfect or at least close to perfect information about the future demand and hence it is able to cope up in a pro active manner with the demands of the customers in Japan (Koichi 2008). The outlets are linked to supply chain through digital media like internet, shared information systems, real time information display screens and e mails. With such interactive modes of collaboration used all the points in the supply chain are always active and ready to respond to any situation at any particular hour. This has only become possible by means of great intercompany collaboration system developed inside all the outlets of Mc Donald’s. All the employees are aware of the needs of the hour and they take decisions accordingly and transfer information to the relevant component in the supply chain and in this manner even a panic situation is dealt with easily without costing the company any dissatisfaction on behalf of the customer. Hence Mc Donald’s is able to maintain its image of “a happy place”. Conclusion So here we see that Inventory Management is a very complex subject that is dependent upon multiple departments of a company including Supply Chain, Marketing and Finance. All these departments are interrelated and underperformance of one may lead to an indispensable system failure. All the players that are involved in the customer value chain including various functional departments of the company need to share information with each other with the use of technology at all points in time. This is not only important for the sustained profitability of the company but is also the order of the day for every company bearing in mind the ever elevated level of customer expectations and the prevalent consumer culture in the market place. References Rose Jacobs Published 27 November 2010 Adam Fowle, chief executive, Mitchells & Butlers - M&B chief focused on what its pubs do best  retrieved from www.ft.com/cms/s/0/66b448d8-f99d-11df-9e29-00144feab49a.html KOICHI, November 2, 2008 The Japanese McDonalds Menu (I’m actually lovin’ it!) Retrieved from http://www.tofugu.com/2008/11/02/the-japanese-mcdonalds-menu-im-actually-lovin-it/ Read More