Inventory refers to the number of valuable goods available in an organization at a particular time to ensure customer demands are met efficiently (Axster, 2006). Inventory management refers to the efforts taken by the management of an organization to ensure the maintenance of an efficient and economical amount of inventory. Inventory is necessary for an organization to meet speculative demand, physical needs, and the organization’s functionality. This improves organization efficiency leading to high profitability and turnover ratios in a given organization (Axster, 2006). This study aims at analyzing various factors affecting inventory management and the most efficient inventory management methods in a small pizza restaurant.
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Issues in Inventory Management faced by a small Pizza Restaurant
- Forecasting demand– one of the issues that a small pizza restaurant faces are the inability to accurately forecast demand requirements. Accurate forecasting enables the restaurant to vary inventory levels with respect to demand fluctuations, in this case, pizza. This inability to forecast the demand for pizza accurately and other foods affect the amount of inventory held, hence demand to forecast, is the main issue facing a small pizza restaurant.
- Perishable inventory– another issue facing a small pizza restaurant in inventory management is that the food and pizza are perishable. This means high inventory may lead to losses if all the food and pizzas are not sold while fewer inventories may not efficiently meet demand requirements. The small pizza restaurant is, therefore, faced by the need to ensure inventory kept is optimum to avoid losses or lack of customer satisfaction.
- Available space– Small space limits the amount of inventory while when the space is large; factors including demand and durability of the goods are to be considered to make inventory decisions. The most appropriate decision should be one that considers available space, as well as customer demand.
- Replenishments– the rate at which the restaurant can be able to replenish the inventory in case of a reduction also affect the pizza restaurant. It determines the lowest amount of inventory the pizza restaurant can keep and maintain efficiency, hence acts as a factor the restaurant must consider in inventory management.
Benefits of using Fixed order quantity, as opposed to a fixed period system of inventory management
A fixed order quantity model of inventory management entails ordering a fixed amount of goods or materials at the time they are required. This order quantity is determined by the demand for goods or materials at a certain time, triggering the acquisition of extra inventory. A fixed period inventory management system involves ordering a required amount of goods at a certain fixed interval, which could be a year, a month, or a week (Collier, 2011). A fixed order quantity has various benefits, which include reducing the amount of inventory as opposed to a fixed period inventory where the pizza restaurant will be required to order large quantities to cover a large period (Toomey, 2000). In a small restaurant, the doughnuts are perishable; hence the fixed order quantity system is preferable due to the low inventory levels.
Ordering a fixed order quantity of doughnuts in the restaurant is also beneficial since no surveillance and periodic counting of inventory is done, this is necessary for a fixed period inventory system (Saxena, 2009). A fixed order quantity also enables the restaurant to respond to stock out caused by increased demand than in a fixed period system quickly. Fixed order quantity model is also beneficial as it reduces the chances of running out of stock when demand for a product rises sharply (Axster, 2006). The restaurant can take advantage of changes in customer demands easily in a fixed quantity ordering inventory management system.
A better Inventory control approach and the rationale
A better approach for Doughnut inventory control in the restaurant is the fixed order quantity approach. The main rationale for the decision is that it increases stock turnover and reduces the stock of capital tied to inventory for the restaurant. This will improve the efficiency of the restaurant and enable the restaurant to increase profits from the sale of doughnuts. Further, the fixed order quantity reduces the probability of occurrence of obsolete doughnut stock in the restaurant due to the presence of adequate inventory (Saxena, 2009).
The other rationale is that of lowering inventory keeping costs to a minimum by ensuring the costs are low while keeping performance and functionality high. The lack of a review period in the fixed order quantity model is also of importance because it prevents stock out as is the case in the fixed period system of inventory control (Collier, 2011). Further, a fixed order quantity system is less risky and allows the restaurant flexibility in its operations. To add on, is easier to sustain a fixed order quantity system than a fixed period quantity system. Use of fixed order quantity system translates to an overall increase in the profits of the restaurant due to a reduction in the inventory and holding costs facing the restaurant.
Inventory Management difference in a chain of 25 pizza restaurants and a small restaurant
In a chain of 25 restaurants, management of inventory differs from a small restaurant due to the need to ensure a high turnover and meet different customer demands for a chain of 25 restaurants (Saxena, 2009). The most appropriate method is the just in time inventory method where the restaurant orders the goods when needed. This reduces wastage and enables the restaurants to meet different customer tastes and preferences in the 25 locations of their operations (Collier, 2011).
This is opposed to a small restaurant where the customer tastes and preferences are mostly equal or predictable, and a fixed order quantity inventory system is used. Additionally, greater effort and time is required in forecasting and evaluating the correct amount of inventory required in a large restaurant than a small restaurant (Toomey, 2000).
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The other difference is the need to hire personnel in a chain of 25 restaurants to manage, receive and track inventory daily. This does not apply to the small restaurant due to the low inventory management levels requirements, as the owner can simply check the inventory by himself and manage inventory efficiently. An inventory management computer system may also be necessary in chain of 25 restaurants for efficient inventory control, which is not necessary in a small restaurant (Toomey, 2000). Operations in a small restaurant are less and the demand can easily be predicted, but a large chain of 25 restaurants have a high number of operations. A chain of 25 restaurants require a greater professional and competent staff to manage inventory control for, efficient running of operations, as opposed to a small restaurant.
Axster, S., (2006). Inventory Control. New York, NY: Springer.
Collier, A., & Evans J., (2011). OM3. New York, NY: Cengage Learning.
Saxena, R., (2009). Inventory Management: Controlling in a Fluctuating Demand Environment. Delhi: Global India Publications.
Toomey, J., (2000). Inventory Management: Principles, Concepts and Techniques. New York, NY: Springer.