Page 221 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Retail Business Environment

Notes The availability of inventory provides customer service. The Item Fill Rate (IFR) measures how
often a particular product is available. A common metric of customer service, IFR is expressed as
the percentage of time that a customer can obtain the item they seek.
However, there can be exceptions. A customer might not obtain what they seek for several
reasons. The seller may have run out of a product due to an inaccurate forecast. Or the supplier
may have shipped an incorrect package size or flavor. Products in inventory may be unfit for
sale because of damage or an expired shelf life. Finally, a seller may not have the capability to
accurately track inventory in their stores or distribution centers.
To avoid shortfalls or stockouts, firms carry extra inventory known as safety stock. As more
customer service is provided, a firm can expect sales to increase. However, as a firm tries to
provide perfect customer service, logistical costs increase simultaneously.
The level of inventory which should be maintained also depends on the stage of the product life
cycle. During introduction; logistics must support the business plan for product launch, while
preparing to handle potential rapid growth by quickly expanding distribution. At market
maturity, the logistical emphasis shifts to become cost driven. Over-abundance of products in
the late maturity or decline stage will eventually result in obsolete products. The obvious
difficulty is predicting how long each stage will last and how abruptly sales will fall in the
decline stage.
Understanding this life cycle can help managers select logistical tactics, inventory levels and
supply chain designs. The ultimate goal for companies should be to have just enough inventories
to satisfy consumer demand.

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Caution Customer satisfaction is affected by the level of inventory maintained. For products
with relatively certain demand and a long product life, it should be relatively easy to
maintain desirable customer service standards even as inventories are reduced. However,
for products characterized by erratic demand, a short life cycle, or product proliferation, a
more responsive supply chain and larger buffer inventories may be needed to meet a
desired customer service level.

Self Assessment

Fill in the blanks:
11. To avoid shortfalls or stock outs, firms carry extra inventory known as …………… stock.

12. The ………………… measures how often a particular product is available.

13. A ………………… demand arises from the production of another product. Independent
demand arises from demand for an end product.

14. ………………… inventory is any amount held on hand that is over and above that currently
needed to meet demand.

15. Any item that has a parent but is not a raw material is considered to be …………………
16. Maintenance, repair, and ………………… supplies, or MRO goods, are items that are used
to support and maintain the production process and its infrastructure.

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