Chapter 7. Logistics and Supply Chain Management
In the previous chapter, you learned about the importance of aligning your sales efforts with inventory levels. This is especially true if your inventory reaches a point where significant amounts of capital are involved. In our case study, we saw that one item had insufficient inventory levels, whereas another item that we promoted had higher inventory based on the increased demand we anticipated due to the promotion.
A recent study by AMR (How to predict demand amid economic upheaval?, InformationWeek's issue, Page 29, 02 March 2009) shows that 7% of all retail products are out of stock at any given time. Furthermore, 15% of goods that are on promotion are out of stock according on this study. When capital is scarce, you need to align your inventory investments with demand and implement forecasting methods.
Let's say we keep about $50,000 in inventory for our promotion. According to the AMR research study, we will be 15% short of stock, which...