Reference no: EM133591900

Assignment: Purchasing, Inventory and Warehouse Management

A. Inventory is a critical part of just about any business. Inventory also presents dangers when there is too much, too little, arrives at the wrong time or in the wrong place. This makes the process of inventory management vitally important to the longevity of the business.

Review the following areas where good inventory management helps a business:

a. Customer experience.
b. Improving cash flow.
c. Avoiding shrinkage.
d. Optimizing fulfillment.

Pick one of these areas and discuss the connection between good inventory management the area chosen.

B. The objective of inventory management is to maintain inventory at an appropriate level to avoid excess or shortage of inventory. Inventory management systems reduce the cost of carrying inventory and ensure that the supply of raw material and finished goods remain continuous throughout the business operations.

Review these objectives:

I. Operating objectives:

i. Ensure continuous supply of materials.
ii. Ensure uninterrupted production process.
iii. Minimize the risks and losses incurred due to shortage of inventory.
iv. To ensure better customer services.
v. Avoiding of stock out danger.

II. Financial Objectives:

i. Minimize the capital investment in the inventory.
ii. Minimize inventory costs.
iii. Economy in purchase.

Suppose you are the inventory manager of a firm dealing in dairy products. State what would be your priority objectives of managing the inventory of dairy products.

Consider that holding excess inventory could lead to the following consequences:

1. Unnecessary investment of funds and reduction in profit.
2. Increase in holding costs.
3. Loss of liquidity.
4. Deterioration in inventory.

C. A third-party logistics (3PL) service allows retailers to effectively rent space in another warehouse. They can then send inventory directly to the 3PL location for them to store and ship on your brand's behalf. This usually incurs warehousing and shipping fees, but again eliminates the need to worry about having to store inventory.

Below are the pros and cons.

In this assignment consider a Miami clothing retailer that imports its apparel from overseas and is expanding to Atlanta Georgia. Post your thoughts regarding the use of a 3PL or building their own warehouse facility.

Pros:

1. Inventory management is entirely taken care of by the 3PL service.
2. Can take advantage of bulk inventory discounts without the need for a self-fulfillment warehouse.
3. Usually involves significantly faster shipping times and more control over product quality compared to drop shipping.

Cons:

1. Monthly storage fees can eat into profits for slow moving stock.
2. Trusting someone else to ship products on your brand's behalf.
3. Usually requires investing in bulk stock quantities.

Best for: Growing retail brands that have proven, consistent sales and want to buy stock in bulk without a dedicated warehouse.

D. An inventory accounting method called Last in First Out (LIFO) works on the assumption that the most recent products added to inventory are the first ones to be sold first. This system works well for retail businesses specializing in non-perishable goods and a low risk of obsolescence. Increases COGS and lessen net profit (reducing annual tax liability) if more recently purchased goods are more expensive.

For this assignment choose a product and explain and defend using the LIFO method for inventory accounting. Why are you using it and what is the benefit over First in First Out (FIFO).