Supply Chains as Sources of Competitive Advantage
Optimizing the Supply Chains A supply chain is the network of relationships between the upstream and downstream activities with all stakeholders who are involved in this chain of relationships. To take an example, if a particular good or service has to be delivered to the customer, there are raw materials that are needed for the […]
Process Design and Analysis
Introduction The objective of organization is to provide service and product, which satisfy customer and create value for them. A product and service designed is based on the customer feedback and requirement of the market. Process design is where the product is broken down into parts, which further can be helpful in the actual manufacturing […]
Crackdown on Indian Credit Rating Firms
Credit rating industries are part of a closely held industry. For years, this has worked in favor of these agencies since they have to face less competition. However, these agencies are also the first ones to get blamed after every financial crisis. It is a known fact that no one can really predict a market […]
The Rise of Machine Learning
Machine learning seems like an “IT” buzzword. It seems to be the sort of thing that would make a difference to high tech companies and not businesses that we interact with every day. However, that is not the case. Machine learning is expected to have a significant impact on all sectors and finance is not […]
The Global Economic Crisis and its Impact on India
Much has been written about the way in which India was one of the few countries that was relatively unscathed because of the global economic crisis. Most of these narratives focused on how India managed to weather the storm in the dark days following the collapse of Lehmann Brothers. However, it cannot be completely said […]
All Manufacturing and Marketing Companies hold Finished Goods inventories in various locations and all through FG Supply Chain. While finished Goods move through the supply chain from the point of manufacturing until it reaches the end customer, depending upon the sales and delivery model, the inventories may be owned and held by the company or by intermediaries associated with the sales channels such as traders, trading partners, stockiest, distributors and dealers, C & F Agents etc.
Organizations carry out detailed analysis of the markets both at national as well as international/global levels and work out the Supply Chain strategy with the help of SCM strategists as to the ideal location for setting up production facilities, the network of and number of warehouses required to reach products to the markets within and outside the country as well as the mode or transportation, inventory holding plan, transit times and order management lead times etc, keeping in mind the most important parameter being, to achieve Customer Satisfaction and Demand Fulfillment.
The blue print of the entire Production strategy is dependant upon the marketing strategy. Accordingly organizations produce based on marketing orders. The production is planned based on Build to stock or Build to Order strategies.
While Build to Order strategy is manufactured against specific orders and does not warrant holding of stocks other than in transit stocking, Build to Stock production gets inventoried at various central and forward locations to be able to cater to the market demands.
Marketing departments of companies frequently run branding and sales promotion campaigns to increase brand awareness and demand generation. Aggressive market penetration strategy depends upon ready availability of inventory of all products at nearest warehousing location so that product can be made available at short notice - in terms of number of hours lead time, at all sales locations through out the state and city.
Any non-availability of stock at the point of sale counter will lead to dip in market demand and sales. Hence holding inventories becomes a necessity.
Supply chain design takes into account the location of market, market size, demand pattern and the transit lead time required to reach stocks to the market and determine optimum inventory holding locations and network to be able to hold inventories at national, regional and local levels and achieve two major objectives. The first objective would be to ensure correct product stock is available to service the market. Secondly stocks are held in places where it is required and avoid unwanted stock build up.
Market location and the physical terrain of the market coupled with the local trucking and transportation network often demand inventory holding at nearest locations. Hilly regions for example may require longer lead-time to service.
All kinds of vehicles may not be available and one may have to hire dedicated containerized vehicles of huge capacities. In such cases the will have to have an inventory holding plan for such markets.
Far away market locations means longer lead times and transportation delays. Inventory holding policy will take into account these factors to work out the plan.
In many countries where GST is not implemented, regional state tax rules apply and vary from state to state. Accordingly while one state may offer a tax rebate for a particular set of product category, another state may charge higher local taxes and lower inter state taxes. In such cases the demand for product from the neighboring state may increase than from the local state. Accordingly inventory holding would have to be planned to cater to the market fluctuation.
While in case of exports from the country of origin into another market situated in another country, one needs to take into account the rules regarding import and customs duties to decide optimum inventories to be held en route or at destination.
FG inventory holding becomes necessary in cases where the lead-time for production is long. Sudden market demand or opportunities in such cases require FG inventories to be built up and supplies to be effected.
Companies always keep a watch on the economy, annual state budget, financial environment and international environment and are able to foresee and estimate situations, which can have an impact on their business and sales.
In cases where they are able to estimate a increase in industry prices, taxes or other levies which will result in an overall price increase, they tend to buy and hold huge stocks of raw materials at current prices. They also hold up finished stock in warehouses in anticipation of a impending sale price increase. All such moves cause companies to hold inventories at various stages.
Finally organizations hold FG inventories to satisfy customer demand, to reduce sales management and ordering costs, stock out costs and reduce transportation costs and lead times.
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