Product details

By continuing to use our site you consent to the use of cookies as described in our privacy policy unless you have disabled them.
You can change your cookie settings at any time but parts of our site will not function correctly without them.
Management article
-
Reference no. R00601
Published by: Harvard Business Publishing
Published in: "Harvard Business Review", 2000

Abstract

As retailers adopt lean retailing practices, manufacturers are feeling the pinch. Retailers no longer place large seasonal orders for goods in advance--instead, they require ongoing replenishment of stock, forcing manufacturers to predict demand and then hold substantial inventories indefinitely. Manufacturers now carry the cost of inventory risk--the possibility that demand will dry up and goods will have to be sold below cost. And as product proliferation increases, customer demand becomes harder to predict. Most manufacturers apply one inventory policy for all stock-keeping units in a product line. But the inventory demand for SKUs within the same product line can vary significantly. SKUs with high volume typically have little variation in weekly sales, while slow- selling SKUs can vary enormously in weekly sales. The greater the variation, the larger the inventory the manufacturer must hold relative to an SKU''s expected weekly sales. By differentiating inventory policies at the SKU level, manufacturers can reduce inventories for the high- volume SKUs and increase them for the low-volume ones--and thereby improve the profitability of the entire line.

About

Abstract

As retailers adopt lean retailing practices, manufacturers are feeling the pinch. Retailers no longer place large seasonal orders for goods in advance--instead, they require ongoing replenishment of stock, forcing manufacturers to predict demand and then hold substantial inventories indefinitely. Manufacturers now carry the cost of inventory risk--the possibility that demand will dry up and goods will have to be sold below cost. And as product proliferation increases, customer demand becomes harder to predict. Most manufacturers apply one inventory policy for all stock-keeping units in a product line. But the inventory demand for SKUs within the same product line can vary significantly. SKUs with high volume typically have little variation in weekly sales, while slow- selling SKUs can vary enormously in weekly sales. The greater the variation, the larger the inventory the manufacturer must hold relative to an SKU''s expected weekly sales. By differentiating inventory policies at the SKU level, manufacturers can reduce inventories for the high- volume SKUs and increase them for the low-volume ones--and thereby improve the profitability of the entire line.

Related