Supply Chain Management Case Study 1) What is Bakers inventory turnover?

Inventory turnover is a measure of the companys ability to flip its products for cash. The formula to use to determine inventory turnover ratio is the cost of goods sold during a period divided by the inventory on hand for the period. Inventory turnover = Cost of goods sold Inventory

Using the formula above, we can calculate that Baker's inventory turnover this year was: $21,500 $1,250 = 17.2 times

This means that Baker effectively replenished its inventory 17.2 times during the course of the year. There is no general norm for the inventory turnover ratio. It should be compared against industry averages. In this case, the Bakers inventory turnover is high compare to those of industry leaders, and the company is efficiently moving inventory in the course of business. 2) What is Bakers percent of assets committed to inventory? Maintaining the right amount of inventory is an important part of managing small business resources and cash flow. Too much inventory takes up valuable resources and cash that cannot be used for other purposes, while too little might not be enough to meet customer demand. The inventory will be available in the current assets of the company. Take this value and divide it by the total assets given on the balance sheet. Assets are a companys resources, such as inventory, cash, accounts receivable and equipment. The percentage of assets committed to inventory is known as inventory-to-total assets ratio. It shows the percentage of the assets tied up in the inventory of the company. Generally, the lower percentage value of this ratio is considered better for the company. We can calculate Bakers inventory-to-total assets ratio to measure inventory as a percentage of total assets: Percent invented in inventory = $1,250 $16,600 Total inventory investment Total assets X 100

X 100 = 7.53%

Compare Baker inventory-to-total assets ratio with those of industry leaders. Baker might need to adjust their inventory level. In this case, the industry leaders are 8%. At 7.53%, Baker ratio might be low. By looking at the inventory-to-total assets ratio over time, we can determine inventory levels for the company. If the ratio is rising, inventory levels are increasing, which may be a sign of low demand and oversupply of the inventoried asset. Conversely, if inventory levels are decreasing, it may be a sign of increased demand which points to a higher level of profitability.

3) How does Bakers performance compare to the industry leader? Baker invested 7.53% of assets in inventory and the inventory turnover is 17.2 times per year. But industry leaders invest 8.00% of assets in inventory and the inventory turnover is 13.0 times per year. In general, low inventory turnover ratios indicate a company is carrying too much inventory, which could suggest poor inventory management or low sales. Excess inventory ties up a company's cash and makes the company vulnerable to drops in market prices. Conversely, high inventory turnover ratios may indicate Baker is enjoying strong sales or practicing just-intime inventory methods. High inventory turnover also means Baker is replenishing cash quickly and has a lower risk of becoming stuck with obsolete inventory. High turnover also can be misleading, however. Bakers high ratio may result because they buy too little inventory to keep up with customer demands. Buying smaller inventory amounts regularly means they pay higher price points. This inflates their cost of goods sold, which makes for a high turnover ratio. In this case, the industry performance is 0.47% more than Bakers, which means that Bakers performance is very low when compared to the industrys performance. Baker has a low performance of inventory buying practices, but they investing $1,250 (rather than $21,500) frees up $20,250 that can be used for other purposes, such as stocking other products with potential to generate additional profits. Baker has an effective inventory management by selling $21,500 worth of product (and making $6,000 gross profit) with an investment of $1,250. 4) What an effective inventory management policy is? Effective inventory management in any business starts with having sound inventory policies. Management needs to set policies for safety stocks (extra inventory you want to carry above your immediate needs), lot sizing (how much you want to order or make when you need to replenish any inventory item), customer service (defining what is your objective for on time and in full delivery) and more. Policies also need to be set for maintaining accurate inventory records for example, should cycle counting be used as an aid for improving accuracy of inventory records. A commonly used technique in the area of setting inventory policies is called ABC Analysis. The ABC analysis categorizes products based on importance. Importance may come from cash flows, lead time, stockouts, stockout costs, sales volume, or profitability. Once the ranking factor is chosen, break points are chosen for classes A, B, C and so on. The ABC analysis concept is particularly useful in distribution planning when the products are grouped or classified by their sales activity. The top 20 percent might be called A items, the next 30 percent B items, and the remainder C items. Each category of items could be distributed differently. For example, A items might receive wide geographic distribution though many warehouses with high levels of stock availability, whereas C items might be distributed from a single, central stocking point with a lower total stocking levels than for the A items. B items would have an intermediate distribution strategy where few regional warehouses are used.

5) Techniques that may be implemented to improve effective supply management. Explain. An important building block in effective supply management is strategic partnerships between suppliers and buyers, partnerships that can help both parties reduce their costs. At the same time, many supply chain partners engage in information sharing so that manufacturing are able to use retailers up-to-date sales data to better predict demand and reduce lead times. This information sharing also allows manufacturing to control the variability in supply chains and by doing that, reduce inventory and smooth out production. In addition to reducing costs, the supply chain must also maintain quality and service. Failure to do so can have negative implications from both a net income and legal perspective. One solution supply chain managers have been using is the quality management system (QMS). QMSs work by providing supply chain managers with a framework for mapping out a process to create a more effective supply chain.

6) How many technology be used in both supply & distribution activities? Give examples. Electronic Commerce (e-Commerce) E-commerce refers to the replacement of physical processes with electronic ones and the creation of new models for collaboration with customers and suppliers. E-commerce can be used to facilitate the interaction between different companies as well as interaction of individuals within companies. Examples include purchasing over the Internet, exchanges, order tracking, and e-mail. Company use Intranets as well as Extranets and Exchanges. The difference between Internets, intranets, and extranets is explained mostly by who is allowed access to the system. Radio Frequency Identification (RFID) RFID is a technology that deploys tags emitting radio signals and devices, called readers, that pick up the signal. The tags can be active or passive, they either broadcast information or respond when queried by a reader. They can be used to read an electronic product code (EPC), a unique number that identifies a specific item in the supply chain. Many companies are experimenting with various applications of RFID such as Wal-Mart. These applications include using RFID to improve manufacturing processes, manage SKUs in distribution centers, and track products or containers.