Keeping inventories risks production and retail companies to a number of hazards and expenditures. Keeping stock may raise the chance of a price decrease. This might be due to a competitor’s excess production of goods in the market, the debut of a new competing product, or a competitor’s aggressive price structure. Because of advancements in technology, advances in product development, and changes in client preferences, inventory may become obsolete. Stock control must include the cost payments to suppliers as well as the cost of transporting the merchandise to shops, security, and transport costs (Bowersox, 2019). This paper was written for the purpose of discussing the disproportionate risk of holding inventory.
Another thing to take into consideration in managing inventory is the price of purchasing. The price of ordering comprises the cost of requesting, preparing a purchase request, transporting merchandise, and receiving goods at the warehouses. Carrying costs include the cost of maintaining goods in a facility, handling fees, insuring and payment made for the inventory system, and potential costs locked away in inventories. The term potential cost alludes to the alternate use of cash that the corporation might have made instead of investing in inequities.
The manufacturer or producer selects what stock to make and send when to send it, and in what amount with the pushing distribution system. This implies that the manufacturer is essentially moving or ‘pushing’ inventory supplies throughout the distribution chain. The automaker is responsible for making sure that its production plant continues to operate according to the most efficient and reliable production plan to make sure that more of the correct stock is obtainable to its distribution companies without saddling the distribution network and driving down prices with excessive stock with drive dispersion.
When supplies fall short of what is required, they result in increased costs. Stock shortages also lead to higher costs, consumer unhappiness, a decline in revenues, and a rise in company loss. Because of its subjective character, measuring shortfall costs is challenging. In reality, the lost contributions as a consequence of the inability to satisfy demand is a reasonable estimate. In circumstances where a run-out does not result in the loss of business, extra fees for last-minute purchases may be called shortfall costs.
The main difficulty with a push distribution channel is that the producer is generally the component in the production process that is the furthest distance from the final customer. A push marketing approach typically results in lower awareness of demand when there is no openness, good communication, or cooperation along the chain from final consumer to distributor to manufacturing (Waters, 2019). This leads to inefficient delivery of services and shortfalls or excesses farther down the supply chain. Although there is no single answer to all of a logistic chain’s difficulties, a push delivery model can improve demand awareness at each endpoint by installing a unified and robust inventory tracking platform. These days, the best systems on the market provide openness and cooperation between the producer, supplier, and retail locations.
To summarize, a trend to push inventory back up the distribution channel exists because stock control is dangerous, and the risk changes depending on the company’s distribution channel location. This could be due to a rival’s overproduction of products available in the market, introducing a new competitive product, or a supplier’s aggressive pricing strategy. Another factor to consider while managing inventories is the cost of purchasing. The producer decides what stock to build when to distribute it, and how much to send through the pushed distribution model. The fundamental issue with a push distribution network is that the manufacturer is usually the element in the manufacturing method closest to the ultimate client.
Bowersox, D. (2019). Supply Chain Logistics Management (5th Edition).
Waters, D. (2019). Supply chain management: An introduction to logistics. Bloomsbury Publishing.