Inventory control is an important activity in any business. The reason is that the operation entails the management of a business’ inventory. As such, without a system in place to manage the inventory, a firm may find itself out of business for there will be nothing to offer to customers or there may be excess stock that will eventually increase the total cost incurred by a firm. To control the inventory, there are several approaches that are employed by companies. These approaches may be used solely or in combination. One of the approaches used to control inventory is stock-outs. Stock-outs is a term used to describe a particular event in a company’s life where the entire inventory is exhausted (Muller, 2003). If this inventorial situation is not handled swiftly, there are chances that a company may bear losses. By use of stock outs, a company is set to control the inventory and, at the same time, reduce costs. The reduction in cost takes place because the enterprise utilizing this approach to control inventory runs on a minimum stock; therefore, the incidence of overstocking is uncommon.
Using this approach, operations and items for resale are ordered and delivered only when needed. This is advantageous only if a company is confident about their suppliers’ ability to deliver. Lack of this confidence will result in increased losses. These losses refer to the wasted time in ordering, shipping, and putting the products for resale. Per se, there are costs associated with using stock-outs to control inventory. One of the costs is of losing customers to other competitors will meet their demand. Secondly, the process of reordering shipping and delivery could be automated but with this approach, a company is more likely to undertake the process that lowers its productivity. Thirdly, in a competitive market, this method may cause a company to lose its competitiveness as it does not have needed information and products at the right time.
There are two ways of measuring product availability. These include fill rate and cycle service level (Axsäter, 2006). Fill rate measures the performance of shipping as a percentage of the total order (Bensoussan, 2011). As such, the standard of service between two parties is calculated in this measure of product availability. One of the notable fill rates used in measuring product availability is order fill rate and product fill rate. Order fill rate, which is also known as demand satisfaction rate, is the consumption orders percentage which is satisfied by the available stock at a certain moment (Bensoussan, 2011). This fill rate measure establishes the ability of the existing stock to meet the demand. Therefore, for a business to be on the safe side, the rates should be kept at higher values to avoid instances of not meeting the demand. The product fill rate is the percentage of product demand that is met by the existing inventory (Bensoussan, 2011). The measure of interest in this fill rate is the total demand and not time. As such, it tells of the number of customers who were able to get their single-product orders. The cycle service level, on the other hand, measures the percentage of the circle of replenishment that finally ends with all the customer demand being met. Compare to the fill rate metrics, cycle service level is relatively lower.
The measurement of the level of product availability is done using the above-mentioned methods, that is, cycle service level and fill rate. With these methods of measuring, the ability of an inventory in a business to satisfy the existing consumer demand is established. In fact, the level of produce availability is critical to the supply chain in a company. This is because the supply chain can utilize a high level of product availability strategically so as to attract more customers and also improve its responsiveness. However, for this to be achieved, a large inventory is needed which requires extra spending. For the levels to be used effectively, an optimum level of product availability should be established.
Many firms have described the optimal level of product availability as the level of product availability that maximizes a company’s profitability. Some factors greatly influence this optimal level of product availability. One of the factors is the cost of overstocking a product (Axsäter, 2006). This refers to the additional cost that a business owner incurs by buying an extra stock that is not required. The second factor that affects the optimal level of product availability is the cost of understocking a product (Axsäter, 2006). In this situation, a business owner does not invest in satisfying all consumers. As such, he or she is faced with stock-outs situations when operating a business. This case is fatal to a company as an owner does not maximize demand. Decreasing of the cost is another factor that may affect the optimum level of product availability. For instance, if the retail price of unsold items is increased, a business owner is likely to reduce the cost that would incur in buying other products. With this increased prices, the demand for a product will be aligned with available items for sale.
Walmart, one of the retail company in the world, has grown over years to where it is now. It has over 11,000 retail stores in 27 countries, making its supply chain an impressive logistical work (Bensoussan, 2011). Despite the immense growth, it has also been faced with inventory control challenges. This problem has been attributed to mismanagement of stocks. The logistics of this company is usually calculated with greater precision. This calculation includes the automated supplying of orders from the head office to selecting efficient routes for the delivery trucks. With these precise calculations, it is expected that the retail would offer the best to its customers but this was not the case. Walmart customers were missing what they required on the shelves. The out of stock scenario was not impressive, as customers are likely not to return to the store. Taking this in mind and the competitive retail market with aggressive players such as Amazon, lack of inventory control would have harsh consequences for the business.
With the technological advancements in the supply chain being embraced by Walmart, it is believed that the stock was available in the storage. Looking at the cause of shortage in this perspective, Walmart did not have enough staff to move the stock to the shopping floor. In response to this shortage, customers gradually shifted to other retailers who had what they demand. Per se, in this scenario, Walmart’s failure was because of mismanagement of inventory and lack of forecasting on customers behavior in times of stock outs inventory level.
For the brothers John and Michael Phillips, who founded the Stone Horse Supply Company, to sustain problems with stock-outs, the following recommendations should be implemented. The owners need to embrace the right inventory management software. This software should be an online one so that, despite the number of channels that the company has or will have, the entire supply chain activities are centralized for better monitoring. This will eventually create a connection of all the chains or the company’s branches, and also provide a platform of eliminating human error. With such software, the company’s supply chain manager will have data concerning the stock in storage, one to be provided for sale and the one being shipped. This helps in avoiding duplication of transactions where one item is sold twice and also it fosters accountability.
The second recommendation is based on demand focusing. The company should employ this approach so that the company would order items in time. This fosters timely restocking, therefore, ensuring that customers will always have what they demand in time. This may be achieved by calculation of reorder points for every item. Thirdly, the company should invest in enough staff so that issues related to moving of stock from storage to the selling floor. This will ensure that goods are moved from the storage to selling floor as soon as possible.