Managing Inventory and Supply Chains

Improving Flexibility, Speed, and Dependability

Flexibility, the speed of response and dependability are all examples of operational objectives.

Impact of flexibility

• The operational objective of flexibility is important because flexibility allows businesses to respond to changes in demand with little notice.

Mass customisation

• A business can improve its flexibility by using mass customisation. Mass customisation is an approach to production which involves products being made in mass, to achieve lower unit costs, with a final process which allows for customisation.

• Mass customisation allows business to respond to customer needs through customising products requested by customers.

Speed

• The operational objective of the speed of response is important because the ability to meet customers’ expectations in terms of the time taken to produce and distribute a product can contribute to customer satisfaction.

• A business can improve its speed of response by focussing on efficiency during the production process as increased efficiency and productivity will allow businesses to produce and therefore distribute products more quickly.

Dependability

• The operational objective of dependability is important because customers trust reliable businesses which can fulfill orders when they are placed. A business can improve its dependability by ensuring it uses reliable suppliers which it can trust.

• For example, a supermarket using a reliable supplier of milk will increase its dependability as it can ensure it always has milk available to customers.

Managing Supply

Businesses should be able to meet customer demand to maximise profitability. Meeting demand can involve increasing supply.

Impact of outsourcing

• Supply can be increased through outsourcing work which increases output.

Impact of hiring flexible workers

• Supply can be increased using part-time and temporary workers who can support the business flexibly when demand increases.

• Many farms hire strawberry pickers as seasonal workers.

Impact of minimising waste

• Supply can be increased through using a producing to order approach which minimises waste and ensure the availability of raw materials to create products in demand.

Inventory

An inventory is a list of all the stock that is held by a business.

Influences on amount of inventory held

• A business must consider several influences on the amount of inventory held:

  • Inventory control charts can be used to show a business its maximum stock level, re-order level, lead time and buffer stock.

Inventory Control Diagram

• An inventory control diagram shows the maximum stock level that a business is willing to operate at.

• An inventory control diagram shows the re-order level which is the point at which further stock is ordered.

• An inventory control chart shows the buffer stock which is the spare stock a business holds in case there is an unexpected increase in demand.

• An inventory control chart shows the lead time which is the time taken for the stock to arrive after it is ordered.

Inventory Control Diagram

The Value of Outsourcing

Outsourcing is when a business uses another business to make part of its product or provide part of its service.

Advantages of outsourcing

• Outsourcing can provide cost savings because a third-party business may be able to create or produce a product or service at a lower cost than the original business.

Disadvantages of outsourcing

• Outsourcing can lead to quality problems if the business that wins the outsourcing contract does not uphold the same quality standards.

• The business may lose its influence on quality control.