An inventory system for a business is composed of the processesassociated with requesting, ordering, receiving and paying forinventories. Inventory management is used in maintaining the desiredstock level of specific products. Businesses have the mandate toestablish what, when, and how to order their items. The orderingsystem ensures availability of products for customers. Furthermore,it should improve cash management, enhance inventory control, andincrease the overall profit. There are various methods thatbusinesses use to order their products. Each method has itsadvantages and disadvantages. This paper examines the ordering systemof Mr. DeWitt and the proposed method by Debbie and recommendsimprovements.
Mr. DeWitt’s ordering practices
Mr. DeWittoperates Boomer Bookshop adjacent to the University of Oklahoma. Thestore sells texts books, course materials, office supplies, T-shirts,sweatshirts, and sportswear. The ordering system of Mr. DeWitt is afixed order quantity model. This model is characterized by aconsistency of order quantity every time the order is placed but theperiod between the orders differs based on the consumption rate ofthe inventory item (Waller M. A. & Esper T. L. 2014). Mr. DeWittplaces orders for items when the stock on hand and inventoryexpenditure is equal to a predetermined limit. He has set minimum(reorder point) and maximum limits that dictate when and how much toorder. The items Mr. DeWitt requests are determined by hiscompetitors’ orders. This approach indicates the inadequacy ofinsights on the dynamic market demands for various products. He alsouses his competitors to determine the maximum stock capacity. Becausethe store owner wants to finish all of his stock by summer, heensures that the maximum limit is set low.
The orderingsystem benefits the store owner since it enables him to place orderswhen they are economically viable. The model helps in ensuring arelatively stable stock level. However, Mr. DeWitt may be spendingmore due to the costs associated with generating and processing eachorder. This ordering model is also disadvantaged by the fluctuationsof demands. Therefore, there are times when Mr. DeWitt might not beable to meet the demand for various items (Waller M. A. & EsperT. L., 2014).
The model thatDebbie proposed is based on the periodic review inventory system. Theperiodic inventory system is reasonable because it is an improvementof the initial ordering system used by Mr. DeWitt. It still enablesMr. DeWitt to make reorders on basic items and thus, helping inmaintaining a fairly stable stock. The store will be able to orderslow moving items in smaller quantities. The periodic inventorysystem is relatively cheap to operate. However, the suitability ofthe method is questionable since it does not accommodate all theitems. This issue can be addressed by ordering based on the demandfor each item.
Factors thatinfluence ordering policies include consumer demand patterns,replenishment lead time, the storage capacity of the store, costs,risks associated with shortages, theft, the number of items, changein consumer preferences, and price fluctuations (Choi T. & ChengE., 2011).
Debbie shouldconsider the factors above when ordering for the T-shirts. She onlyhas information about ordering quantity. Therefore, she needs toresearch to get information about shortages risks, price fluctuationsand any change in the consumer preference. The design of the T-shirtis important. The information about the consumer preference will helpher order the appropriate T-shirt design. Debbie should consider theinformation on student enrollment at the university and sacrificesales of last year to determine the order quantity. She should alsocome up with safety level inventory using the previous sacrificesales to meet unexpected variation in the demand for the T-shirts(Choi T. & Cheng E., 2011).
Choi T. & Cheng E. (2011), Supply Chain Coordination underUncertainty, Springer Science & Business Media
Waller M. A. & Esper T. L. (2014), The Definitive Guide toInventory Management: Principles and Strategies for the EfficientFlow of Inventory across the Supply Chain, Pearson Education