Cutting-Edge Concepts in Inventory Management

Cutting-Edge Concepts in Inventory Management -...

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Worldwide Business Solutions: The Supply Chain Toolbox 1 Cutting-Edge Concepts in Inventory Management Just-In-Time (JIT) and Accurate Response have quickly become popular approaches due to the dramatic improvements on profitability. Due to the reduction in holding costs, profitability and the amount of cash on hand is boosted. This freed capital has become vital for funding investment in new technologies, reducing debt and aggressively expanding into foreign markets. The two inventory management approaches are defined below: Just-In-Time (JIT) - underscores the importance of effective lead-time management. Incremental reductions in lead-time present vast opportunities for production/manufacturing improvement. In a manufacturing environment, JIT is optimised when an operator receives materials only when the materials are required. This concept saves money in holding/inventory costs and increases production responsiveness and flexibility. Accurate Response - focuses on forecasting, planning, and production. Accurate Response helps to increase the speed in the supply chain so managers can delay raw material requirement decisions, obtain more market information, and better determine production requirements. Accurate Response relies on flexible manufacturing and shorter cycle times to better match supply with demand. By properly incorporating these approaches, a firm can significantly increase their production efficiency. This increased performance is primarily attributed to the reduction in working capital, an accounting principle that includes raw materials plus work-in-process inventory plus finished goods plus short-term receivable minus short- term payables. By lowering inventory levels, the working capital required to operate a given business decreases, providing the firm with a competitive advantage. Warehouses begin to disappear which eliminates a substantial expense/investment for a firm. In addition, many workers, equipment (e.g. forklifts) and supplies are removed which strengthens the balance sheet, income and cash flow statement. Firms such as General Electric, Whirlpool, Quaker Oats and Campbell Soup are optimising their inventory
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Worldwide Business Solutions: The Supply Chain Toolbox 2 management in order to gain a competitive advantage and better position themselves for future growth. General Electric’s CEO, Dennis Dammerman recently commented on their vast reduction in working capital, “The concept not only generates cash, it also speeds up production, which helps you run your business far better.” Recent Examples of Success Company Outcome/Benefit Campbell Soup Reduced working capital by $80 million to develop new products and buy foreign companies. Quaker
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This note was uploaded on 04/29/2009 for the course CBS 456765 taught by Professor Paul during the Three '09 term at Curtin.

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Cutting-Edge Concepts in Inventory Management -...

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