In this final paper for Managerial Finance I will attempt to show how the supply chain inventory management method can be affected depending on the situation of the retailer. Studying the control method for problems in inventory, which would include both, excesses in inventory as well as shortages, and hoping to minimize loss. Use of SCM as a Method of Inventory Control I have decided to do the final for Managerial Finance on the use of the SCM method as a form of inventory control, because I have worked in a business that has used many different forms of inventory control.
As a manager it was one of my responsibilities to maintain inventory and observe any losses as a loss prevention issue that must be discovered. The ordering responsibility for inventory was one of my most important duties as a manager. “Supply Chain Management is a set of synchronized decision & activities, utilized to effectively integrate suppliers, manufacturers, transporters, warehouses, retailers & customers so that the right product or service is distributed at the right quantities, to the proper locations & at the appropriate time, in order to minimize system wide costs while satisfying customer service level requirements. (Misra, 2010)
Finding different options for inventory choices as well as finding prices that reflects a profit for the company was primary reasons for me to research the available possibilities in inventory. Deciding a price for acquiring inventory is an important aspect of making a determination in product for any company striving to make a profit. An important aspect of inventory is the amount of inventory that needs to be ordered, as over ordering or under ordering can be just as problematic for a company.
A company that over orders does ot receive profit, because they have put out too much money without a return on that investment, will not make a profit. A popular product may sell very well for a company, but an overabundance of product means that the remaining product after sales may end up being a loss if sales do not again pick up. Under ordering can be just a big of a problem for a company because when customers start coming in for products that are not on the shelves it leads them to find alternate sources for their purchases. Under ordering can also create problems when it comes time to do a secondary order.
The initial under ordering of product can lead even the most cautious of managers to second guess their ordering process. The initial under order leads a manager to think that they need to order more of the product to compensate for future sales of the product. The main problem that comes from this common over reaction is that the company lost out on sales on the initial order so tried to compensate by ordering more of the product on their new order. There may have been an increased demand on the first day of sales that may not (usually not) return when the manager orders more stock.
The ability to make an initial determination as to the proper inventory can be a deciding factor on a profitable business and an unprofitable one. SCM or supply chain management is a process that refines the process in which managers make their decisions for the products and services that the company offers. SCM is a way for a company to find the products that they offer to their customers. “The Supply Chain management (SCM) is defined by the Supply Chain Forum (SCF) as the integration of key business processes from end user through suppliers that provide goods, services and information that add value for customers. (Assey, 2012)
Supply chain management takes the production of a manufacturer and presents it to a supplier; the supplier then presents those products to the retailers which in turn provide those products to the customers. Choosing the supplier that gets the best deal from the manufacturer is going to give the most profit for the retailer selling the product to their customers. The process of supply chain management can actually merge retailers with supplier just as suppliers merge with the manufacturers.
Some companies choose to use various different suppliers for their products while other companies choose to use a single supplier for their product. Personally I worked for a video game company called FuncoLand which was purchased by a company called Babbages, which merged with Electronics Boutique. After the merger the name of the company was changed to GameStop which is now the largest video game retailer in the United States. The thing that makes this important to this paper is that when FuncoLand was purchased by Babbages the supply chain changed.
The change in the supply chain meant that all orders must be relooked at to insure the same profit levels for products that GameStop enjoyed. The single supplier for GameStop was replaced by the numerous different suppliers of Babbages. Every item of inventory needed to be checked to make sure they reflected a price that was going to produce profit for the merged FuncoLand and Babbages stores. Inventory charts were created and every store of both needed to inventory all items listed so that they could be compared with the new companies overall stock as well as profit ratios.
Once the inventories of both companies were done there was a coordinating effort by upper management to determine prices of available product as well as the suppliers that were going to deal which each stores location. The numerous different suppliers made each location different in their ordering and inventory procedures. As could be expected this made it very difficult for these merged companies to be individually managed by the district and upper management. Each individual store was looked at by the store managers and was expected when issues arose to contact headquarters immediately.
The buyout of these two merged companies by Electronic Boutique turned out to be a blessing in disguise for all involved. Electronic Boutique used a single supplier had dealt with the same supplier for years and had already worked out their profit ratios (including the purchase cost of the two companies) and store management once again needed to inventory their entire product for the new owners. The name was changed to GameStop and all store locations now used the same supplier and the prices for each store location were set by upper management.
Ordering was done automatically based on the initial stores inventory counts and the new POS systems. While I understand there is an alternate definition for POS in this instance it refers to “point of sale”. The point of sale system was built using the store’s inventory, and orders for products were made, when the sales reached a certain level. Once a product reached a certain level of sales and did not continue to sell the item was automatically removed from the automatic reorder listing.
The product would not be reordered into that store location unless it was a pecial order done by the stores management and usually had to be presented with a reason for the order to be made. In the four years that I worked for GameStop I only ever had to use this feature one time. A customer wanted Final Fantasy 7, new and unopened, and this was well over a year after the initial release of the game. The suppliers notified the upper management that they could do this, and I placed an order for the product as a full pre-sale, which means that the money was available to GameStop before the product was available to the customer.
Being the only time this issue ever arose for me while working at GameStop it was an interesting learning experience about how a supply chain management process works. “The descriptive model presented is useful in settings where organizational structure and the supply chain are needed to support sustainable products and processes and whose success is facilitated by establishing strategic partners, especially those that make possible economies of scale”. Pullman & Dillard, 2010)
Since one of the primary reasons for using supply chain management is to reduce inventory and cost for a company, GameStop has achieved what neither FuncoLand nor Babbages were able to because their use of a single supplier made achieving profit that much more possible for the mangers making their store orders. “Most of the decline is due to more efficient cash and inventory management”. (Ross, Westerfield, Jaffe, Jordan, 2010) The main purpose of examining the supply chain management method is insuring that the retailer gets the best uses of their supplier(s).
Minimizing shortages, while acquiring profits, in an attempt to optimize the proper supply for each location, is another purpose of using supply chain management. The strategy can be difficult to implement for those unaware of the procedures. I must admit that I did not realize the purpose (or the concept) of supply chain management, at the time I worked for GameStop. Looking back at my time at GameStop has led me to a new appreciation for the business that was built off of the back of FuncoLand.