Inventory Management in Retail Business - Research Proposal Example

Topic: Inventory management in as a tool for cost control in the retail business Inventory management in as a tool for cost control in the retail business Introduction Background to the study Inventory management is considered one of the overall aspects of business logistics decisions that management make in order to ensure that inventories can be held in the most cost effective premise. The need for the retail business to take decisions on how to acquire, allocate and control their supplies is therefore very important for the day-to-day running of the business and also to ensure that customers can get supply when they require (Hontelez, Burger and Wijnmalen, 2006). What is more, inventory management also helps to ensure that the retail operators do not store more than what is required so that their stocks do not loss market value and lead to deficits. It is for this reason that Makis and Jiang (2003) noted that decision on inventory management must be made in such a way that addresses different cost components including cost of inventory supply, cost of holding inventory, and cost from having insufficient inventories. Summarised literature Literature from various sources has all tried to argue for a direct relationship between inventory cost and overall cost of within the retail sector (Ghasemi, Yacout and Ouali, 2007; White, Stoughton and Feng, 2009; and Ferrer and Ketzenberg, 2010). Based on this, it can be summarised in literature of how inventory management actually impacts on inventory cost and for that matter overall cost control within the retail business. Most aspects of literature that looked at the impact of inventory management on cost control within the retail business focused on the use of the right inventory classification models, how to detect poor inventory management, use of just-in-time (JIT) inventory management, and how inventory control systems can be improved to reduce inherent business cost (Ryan, Padakala and Wu, 2008; Makis and Jardine, 2012; and Wu and Ryan, 2012). Research aim and objectives The aim of the proposed study is to find the impact of inventory management on cost control within the retail sector. To achieve this aim, the following specific objectives shall be pursued. 1. To identify the most ideal inventory classification models that can be used within the retail business 2. To find out how stakeholders within the retail sector can identify actions of poor inventory management 3. To determine the place of JIT inventory management in addressing issues of poor inventory management 4. To identify how underlining inventory control systems can be improved to reduce inventory cost. 5. To determine how reduction in inventory cost leads to a reduction in overall cost control in the retail sector. Research plan Months 1 2 3 4 5 6 7 8 9 10 Id Task name Predecessor Duration 1 Identification of a problem 2weeks 2 Finding research setting 1 2weeks 3 Review of literature 1,2 7 weeks 4 Seeking permission from research setting 2 3 weeks 5 Setting sample size 2,3 2 weeks 6 Collecting data from research site 5 12 weeks 7 Analysing data 5,6 4 weeks 8 Writing of research project report 6 8 weeks 9 Marking and defending project 7,8 6 weeks Literature review There shall be detailed review of literature that looks into the thematic areas identified below. Inventory costs There are three major types of costs associated with inventory in literature. These are holding cost, ordering cost, and stock-out cost. Sundin, Bjorkman and Jacobson (2010) explained that holding costs arise when the company incurs costs from sources as handling, insurance, taxes, theft, storage, and obsolescence. But when the company places an order and undertakes any expenses related to ordering, it is said to be incurring ordering cost (Cooper, 2005). Stock-out cost on the other hand has been noted to be present through lost sales, which is a common type of cost happening because of faults and mistakes with inventory policies (Malakooti, 2013). Indeed each of these costs has been noted to have very significant impact on inventory cost and thus the need to cost inventory management on these areas of cost (Lee, 2012). Inventory classification models Kieso, Warfield and Weygandt (2007) argued that using inventory classification models help retailers to handle multiple product lines through effective allocation of time and money. This is because inventory classification models represent two different phenomena which are inventory modelling and classification systems. The inventory models are used for the purpose of allocating time and money as part of the inventory management process. In effect, having the right inventory model ensures that waste in inventory is avoided because there is always the right assignment of time and money to the right scope of inventory (Tempelmeier, 2012). On the other hand, classification systems help retailers to deal with multiple product lines and have all such products handled under a single system that promotes efficiency with resource allocation (Ferrer and Ketzenberg, 2010). ABC analysis and critical value analysis are two examples of inventory classification models. Just in time Ryan, Padakala and Wu (2008) explained that JIT is a component of the overall production philosophy of continuous process improvement. This is because through JIT, retailers seek to eliminate waste and achieve continuous quality improvement by encouraging efficiency in workers (Makis and Jardine, 2012). When limited to inventory, JIT is used as a principle where retailers employ shared responsibility and detailed workplace coordination to ensure that there is effective liaison with suppliers and transportation providers to get needed materials to the right destinations within a precise time frame. For the principle of JIT to function effectively, Wu and Ryan (2012) stressed on the need to follow some basic tenets including quality, vendors as partners and vendor co-location with customer. Gaps in literature Several works of literature identify that when the right inventory classification models are used and JIT is followed well, there will be efficiency with inventory cost. These works however fail to relate the efficiency attained from inventory cost control through inventory management to overall cost control within the organisation. This is a gap that the proposed study will be seeking to bridge. This will be done by collecting data that relates cost of inventory to overall cost of doing retail business. Research questions 1. What are the most ideal inventory classification models that can be used within the retail business? 2. How can poor inventory management be identified within the retail sector? 3. How can JIT inventory management be used to address issues of poor inventory management? 4. How can the improvement of underlining inventory control systems help reduce inventory cost? 5. In what ways does reduction in inventory cost lead to a reduction in overall cost control in the retail sector? Methodology The study shall be undertaken as qualitative research method which makes use of case study research design. Blaxter, Hughes & Tight (2001) explained that case study is ideal for identifying specific issues or problems within a research setting and critically studying the issue through the collection of data. Data collection will thus take place through the use of an interview, where an interview guide will be designed as the preferred research instrument. The research setting to be used shall be the retail sector, where 20 retail managers shall be selected at random from an identified location. Data collection shall be based on one-on-one personal interview which will be arranged with the respondents. Collection of responses shall be done mainly through the use of interview transcripts. Some potential issues that may be encountered include those on validity, reliability and ethics. All of these will however have specific approaches used in solving them. For example, the researcher shall use test retest to examine the items on the interview guide to be sure that they collect data desired for the study and thus promote validity. As far as reliability is concerned, the researcher shall ensure that it is possible to generalise the outcome of the study for the larger retail sector, and that when the study is replicated anywhere, the same line of results shall be achieved (Clifford & Clark, 2004). This will be done by ensuring that the selection of respondents is done in a very fair and unbiased manner. It is for this reason that a random sampling technique shall be used. Ethical considerations shall be ensured by designing a consent form which explains to respondents the aim of the study, their roles, and reason they have to take part in the study. The consent form shall also assure respondents of anonymity and confidentiality with their identities and responses. Discussion The mains approach to analysing data shall be through the use of content and discourse analysis. It is expected that the results will show the use of JIT as the commonest form of inventory management practice. Whiles using JIT, retailers are expected to use internal auditing as the commonest mechanism for measuring inventory cost and thus overall cost of doing business. It is however discussed through literature review that as far as the identification of cost sources is concerned, retailers must go beyond the use of internal auditing when engaging in inventory management (Cooper, 2005). Instead, it is important that they look to third party agencies such as quality control and quality assurance teams from with neutral positions on how the retailers are being effective with inventory management (Sundin, Bjorkman and Jacobson, 2010). Lastly, it is expected that the results will show that retailers who use more cost effective inventory management mechanisms are able to reduce overall cost of doing business. Conclusion Inventory management is an important component of cost control within the retail sector. Effective inventory management that rightly finds a compromise between different cost components including costs of inventory supply, cost of holding inventory and cost of insufficient inventory can therefore be seen as a useful means by which overall cost control within the retail sector can be assured. Whiles controlling cost, retailers will be offered the advantage of having sufficient funds that can go into improving other sectors and areas of their business operations. This eventual outcome is one reason the proposed study can be noted to be particularly useful and significant. References Blaxter L., Hughes C., & Tight M. (2001). How to research. 2nd edition. Buckingham: Open University Press. Clifford C. & Clark J. (2004). Getting research into practice. Churchill Livingstone, London. Cooper T. (2005). “Slower consumption: reflections on product life spans and the ‘throwaway society’,” Journal of Industrial Ecology, vol. 9, p 51, 2005. Ferrer G. and Ketzenberg M. E. (2010) “Value of information in remanufacturing complex products,” IIE Transactions, 36:3, p 265 – 277. Ghasemi A., Yacout S. and Ouali M. S. (2007) “Optimal condition based maintenance with imperfect information and the proportional hazards model”, International Journal of Production Research, v 45, n 4, p 989-1012. Hontelez J. A. M., Burger H. H. and Wijnmalen D. J. D. (2006). “Optimum condition-based maintenance policies for deteriorating systems with partial information”, Reliability Engineering & System Safety, v 51, n 3, p 267-274. Kieso, , DE; Warfield, TD and Weygandt, JJ (2007). Intermediate Accounting 8th Canadian Edition. Canada: John Wiley & Sons. Lee, P. (2012). Retail Services. Australia: McGraw HIll. Makis V. and Jardine A. K. S. (2012). “Optimal replacement in the proportional hazards model,” INFOR, vol. 30, no. 1, p 172-183. Makis V. and Jiang X. (2003). “Optimal replacement under partial observations”, Mathematics of Operations Research, v 28, n 2, p 382-394. Malakooti, B. (2013). Operations and Production Systems with Multiple Objectives. John Wiley & Sons. Ryan S. M., Padakala B. and Wu X. (2008). “Closing the Loop on Product-Based Services with Condition Monitoring”, Proceedings of ICSSSM Conference, Melbourne, Australia, July 2008. Sundin E., Bjorkman M. and Jacobson N. (2010). “Analysis of service selling and design for remanufacturing,” IEEE International Symposium on Electronics and the Environment, San Francisco, CA, Oct 2000. Tempelmeier, H. (2012). Inventory Management in Supply Networks, 3rd Edition, Norderstedt White A., Stoughton M. and Feng L. (2009). Servicizing: The Quiet Transition to Extended Producer Responsibility, Tellus Institute, Boston. Wu X. and Ryan S. M. (2012). “Value of condition monitoring for optimal replacement in the proportional hazards model with continuous degradation”, Working paper. Read More