A. Before you read the text discuss what inventory management, procurement and quick response are. What are their advantages? Read the text and draw a mind map.
Inventory Management. The inventory control activity is critical because of the financial necessity of maintaining a sufficient supply of product to meet both customers’ needs and manufacturing requirements. Raw materials and parts, work-in-process, and finished goods inventories all consume physical space, personnel time, and capital. Money tied up in inventory is not available for use elsewhere.
Inventory management involves trading off the level of inventory held to achieve high customer service levels, with the cost of holding inventory, including capital tied up in inventory, warehousing costs, and obsolescence. In some cases, these costs can exceed 50 per cent of the cash value of inventory on an annual basis! Successful inventory control involves determining the level of inventory necessary to achieve the desired level of customer service while considering the cost of performing other logistics activities. Given the high cost of items such as high-tech merchandise, automobiles, and seasonal goods that rapidly become obsolete, organizations such as Hewllet-Packard, Xerox, and Sears have increased their attention to inventory management.
Procurement. Every company relies to some extent on materials and services supplied by other firms. In most industries, companies spend 40 to 60 percent of their revenues for materials and services from outside sources. This process of acquiring materials and services to ensure the operating effectiveness of the firm’s manufacturing and logistics processes is termed procurement. The procurement function includes selection of supply source locations, determination of the form in which the material is to be acquired, timing of purchases, price determination, and quality control.
The changing economic environment of recent years, marked by wide variations in availability and cost of materials, has made procurement even more important in the logistics process. As organizations form long-term relationships with fewer key suppliers, procurement continues to grow in importance to the organizations.
Quick Response. Quick response (QR) is a retail sector strategy that combines a number of tactics to improve inventory management and efficiency while speeding inventory flows. Most QR is between manufacturer and retailer only. When fully implemented, QR applies JIT (just-in-time) principles throughout the entire supply chain, from raw materials suppliers through final customer.
The concept works by combining electronic data interchange (EDI) with bar-coding technology. Sales are captured immediately. This information can be passed to the manufacturer, who can then notify its raw material suppliers and schedule production and deliveries as required to meet replenishment needs. This allows inventory to be reduced while speeding response time, lowering the number of stockouts, reducing handling, and minimizing obsolescence. Although QR began in the textile/apparel industry, it is now being applied by many industries in the retail sector. The consumer packaged goods sector, especially the grocery industry, has implemented an adaptation of QR called efficient consumer response (ECR).
QR has had a major impact on logistics operations. Rather than “storing” products, distribution centers are now charged with “moving” products. This frequently entails cross-docking, a process that involves unloading inbound product, sorting products for individual stores, and reloading the shipments onto trucks destined for a particular store. No warehousing or storage of the product occurs, except for a few hours or, at most, a day.
To further improve retail efficiency, some suppliers are shipping goods prehung and pretickened. Such goods known as “floor-ready merchandise” are growing in popularity. As a result of QR, Mercantile Stores has reduced the number of distribution centers it owns from 12 to 8. A retailing executive has commented that merchandise routinely spends an additional three days in the distribution center (DC) if it does not have retail price tickets and the proper hangers.
Thus floor-ready merchandise leads to the further reduction in the number of DCs, since processing time is greatly reduced.