Question

most of the items they purchase are stocked by either the manufacturer or by a wholesaler. When it is discovered that the company is out of stock on an item, it generally takes only two or three days to replenish the stock. Due to the company’s recent losses, the bank and auditing firm are concerned about the company’s ability to continue in business. Recently, the company sold off excess vacant land adjoining its manufacturing facility to generate cash, in order to meet its financial obligations. New CEO and President have been appointed this year. This President has identified many problem areas, one of which is improper inventory control. You, an expert, are invited to help the company. What do you think should be implemented?

Answer 1

Answer:

The firm must implement an inventory management system because it is currently managing its inventory very efficiently:

• It is buying too much merchandise which increases inventory costs. We know that because the the manufacturers and wholesalers have to store excess purchased merchandise.  
• The firm is running out of stocks because firm does not hold a safety inventory and one it reaches that point, more merchandise should be purchased or brought in. Merchandise that is not available cannot be sold.

An inventory management system could help them determine their economic order quantity that reduces inventory costs and also would make sure that the company doesn't run out of stock.

An inventory management system (software) basically helps the company to process their merchandise and control stocks. Depending on the type and the complexity of the business several options are available: Cin7, Netsuite, Ordoro, etc.

Answer 2

Answer:

Fixed order quantity inventory system should be implemented

Explanation:

An apparent flaw in the operation is that the company run out of stock before an order is placed and the lead time is up to two to three days.

The down time caused by this leads to a shortage in production which could lead to loss of customers as demand are not being met , and the turnover and net income affected.

In order to manage this situation , i will recommend that a fixed order quantity system is implemented.

In fixed order quantity inventory system , the inventory level in continuously monitored and replenishment stock is re-ordered at a fixed quantity  when the current stock attains a pre- determined re-order point.

This system ensures that a continuous flow of inventory is maintained