The Great Deleveraging and the Reason why the Global Economic Recovery would Falter
The Effect of Two Decades of Profligate Spending Everyone expects the global economy to recover in a magical way and for the good times to return. We are constantly fed on a steady barrage of feel good messages from the marketers about the goods and services they make and sell with the intention of making […]
What is Commercial Arbitration and How Firms Use it to Settle Business Disputes
What is Arbitration and why it is so important and how does It Take Place? We often hear the term, Arbitration, or Commercial Arbitration, used in multiple contexts in business literature. As the name implies, Arbitration, is a process of settling disputes that arise from differing interpretation of contracts between businesses as well as a […]
The Rise of India as a Manufacturing Hub
A couple of decades ago, India was considered to be a third world country with limited economic potential. When the idea of outsourcing first came up, most executives in the United States thought that Central American nations or Ireland would prove to be a better fit. However, two decades later, India is the ultimate destination […]
Disaster Recovery and Business Continuity – Planning Phase
Disaster Recovery and Business Continuity plans if well planned and implemented can help mitigate risks and loss to the business. With increasing competition and complexity of systems and reliance on IT technology, Organizations are focusing in this area to ensure they do not lose out on the business operations in the event of any disaster […]
The Chinese Internet Story
Chinese firms were seldom thought of being anything apart from copies of their western counterparts. The snobbish inhabitants of Silicon Valley never thought that these companies would amount to much. However, the reality has become very different. China today has about 25% of the world’s unicorns i.e. tech startups with a valuation greater than $1 […]
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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