The Fine Garments Company sells fashion clothing. The forecasted annual demand for their premium leather jacket is 2,000. The order-processing cost per order is $40, and the inventory holding cost is $35/item/year.
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How many leather jackets should they order in one shipment?
Being a leader in the global market is a challenging task, mostly due to the uncertainty regarding the changes in the customers’ demands and the quality standards set for the production, as well as the number of items to be produced. Herein the key complexity concerning the identification of the volume of the goods to be ordered lies. At this point, the significance if the use of proper inventory control tools lies. Despite the fact that the needs of the target market may change, the organization in question will be able to meet the requirements of the population members in question as long as the reorder point system is incorporated into the set of the organization’s strategies and the proper tools for the analysis of its production processes are integrated into the general framework of its operations.
Seeing that the order holding cost for each jacket equals the annual demand divided by the sum of the costs, i.e., the order processing and the inventory holding ones (Drury, 2007), it will make 2,000/($40+$35) ≈ 27 for the company.
The Fine Garments Company wants to use a reorder point system. What should its reorder point be if the delivery lead time is two weeks?
The reorder point system allows for replenishing a certain stock so that the required amount of products could be supplied to the target customers (Axsäter, 2015). Based on the required number of jackets that the organization should produce per year, the company should consider releasing 2,000/365*14 ≈ 76 jackets in two weeks.
A periodic inventory control system for the Fine Garments Company if it wishes to hold five weeks of demand as safety stock
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In order to create the inventory system, which will allow for the organization to meet the requirements of the target customers and at the same time produce the goods that comply with the existing quality standards, the periodic inventory system should include the purchases, the accounts payable and the information regarding the debit and the credit of the firm. In other words, the periodic inventory system for the entrepreneurship will look the following way:
As the table provided above shows, it is imperative that the appropriate forecasting tools based on the annual statistical data delivered by the company should be included into the process. Thus, the identification of the future demand rates will become possible and the company will be able to identify the quantity of the product to be released in a more accurate manner. As a result, the threats of failing to provide the target customers with the necessary amount of goods, as well as the one of overproduction, will be avoided successfully, and the firm will be spared from taking a significant amount of costs.
If on a review the inventory of the premium leather jacket is 102, how many leather jackets should be ordered?
Seeing that the number of jackets resulting from the review of the inventory equals 102, it will be reasonable to assume that the company will need to order at least 2,000/52*5 – 102 ≈ 91 jackets. Carrying out the process of planning for the inventory control is a tricky task due to the lack of certainty regarding the possible changes in the demand rates among the target customers. However, by considering the recent data regarding the subject matter and carrying out the corresponding analysis, one will be able to pinpoint the further steps that will need to be taken in order to provide the target denizens of the population with the company’s products. As long as the entrepreneurship in question follows the strategy described above and meets the demand claimed by the customers, it will be able to succeed in the target market.
Axsäter, S. (2015). Inventory control. Berlin: Springer.
Drury, C. (2007). Management and cost accounting. Boston, Massachusetts: Cengage Learning.