Definition of Key Performance Indicator (KPI) and relationship with SLA
A KPI is a great tool to measure and control the performance of any given process. In management jargon, there is a famous saying which says “That which cannot be measured cannot be managed”. The whole process of control, therefore relies on real time measurement and transfer of information from the site where the task […]
The Six Sigma Team
The Composition and the Reporting Structure Any Six Sigma Team usually has 7 types of personnel and a three layer reporting structure. The details of the same are as follows: Layer 1 of the Six Sigma Team: Project Champion and Process Owner Layer 2 of Six the Sigma Team: Project Lead, Finance Certifier, Project Coach […]
Why Cities are the Future and What this Means for Investors and Businesses
Cities are the Future of the World The future of the world would be in cities and urban and semi-urban regions and hence, it is better for governments, businesses, investors, and citizen groups to prepare for an urbanized world where sustainability of the urban modes of living and working would increasingly be strained by inadequate […]
Intellectual Property Rights and their Protection and Defense by Businesses
The Debate over IPR In recent years, intellectual property rights (IPR) have become the topic of intense discussion and concerted efforts by businesses to defend them. The reason for this renewed interest and vigorous protection and defense of IPR is that the theft and piracy of items like software, books, games, and movies has reached […]
The Fight over Rare Earth Minerals
The fight between China and the United States has gone to the next level. Up until now, the United States had been flexing its muscles, trying to beat China into submission. However, backed up in a corner, China has also decided to respond ferociously. The country has decided to escalate the trade war by threatening […]
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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