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Inventory Management at CrayolaInventory management is regarded as a concern for managers in all kinds of businesses.This is because effective inventory management is essential for realizing full potential of anysupply chains. Inventory management can be defined as the planning and controlling ofinventories to meet the competitive priorities of the organization (Krajewski et al, 2015). It isused to manage customer demand and to create value through the internal and externaloperations. Several small and large companies have some form of inventory that is utilized inday-to-day operations to meet customer demands. There are trade-offs to consider ininventory management, and various pressures exist depending on the size of the inventory. Ifa firm has a small inventory, then they run the risk of a shortage, which will ultimatelydamage the relationship with the customers since their demands will not be met. However,having a large inventory has the potential to reduce profitability. Determining the size of theinventory requires a company to understand their market, and know the advantages anddisadvantages of both volumes (Krajewski et al, 2019). This discussion aims to considerinventory management at Crayola as explained in the video case. Crayola is one of the mostwell known names in the arts and craft industry, with over 99% name recognition in theUnited States (Gruszka, 2019).The video case “Inventory Management at Crayola” explains the inventory managementchallenges and strategies at Crayola. It is important to note that Crayola faces three mainseasons year-round: spring, back to school, and holidays. The back to school period drives42% of company sales, which creates a risk if Crayola fails to predict demand accurately ormeet the demand with production. For these reasons, Crayola has the strategy to locate keysuppliers close to their plants; utilize materials requirements planning systems; postpone thefinal packaging that decides whether they are in kits, packages, or bundles; level outproduction early-on; and focus on accurate forecasting.
Pressures for Small InventoriesThere are a number of pressures that small inventories face and these are discussedbelow:Cost of CapitalKrajewski et al (2015) identified cost of capital as one of the pressures for smallinventories. Cost of capital refers to the opportunity cost of investing in an asset relative tothe expected return on assets of similar risk. It should be noted that most firms use weightedaverage cost of capital. It is the largest component of holding cost.