Research two (2) manufacturing or two (2) service companies that manage inventory and complete this assignment.
Write a six to eight (6-8) page paper in which you:
- Determine the types of inventories these companies currently manage and describe their essential inventory characteristics.
- Analyze how each of their goods and service design concepts are integrated.
- Evaluate the role their inventory plays in the company’s performance, operational efficiency, and customer satisfaction.
- Compare and contrast the four (4) different types of layouts found with each company; explain the importance of the layouts to the company’s manufacturing or service operations.
- Determine at least two (2) metrics to evaluate supply chain performance of the companies; suggest improvements to the design and operations of their supply chains based on those metrics.
- Suggest ways to improve the inventory management for each of the companies without affecting operations and the customer benefit package. Provide a rationale to support the suggestion.
Introduction
Irrespective of the nature of the business of any company and the types of product and services that it deals with, each company needs to hold and manage some inventory for its operations. There are three types of inventory in which a company holds it; Raw Material, Work in Process, and Finished Goods. Inventory is categorized as a current asset by the companies as it has a specific economic value and is itemized in the book of accounts with its value. Organizations need to hold inventories at an optimum level so that it has enough inventories at the time of requirement but not excess enough that it gets obsolete and damaged. The excess amount of inventory level causes tied up of the working capital and increments in the costs. It consequently affects the overall performance of the company and plays a vital role in its efficiency. On the other hand, the holding of less amount of inventory can cause disruption in the supply chain and consequently reduction in the market share of the company. This disruption can be used for exploitation by the competitors, and thus it shows that managing inventory levels and a steady supply of inventory on the shelves of the stores is very crucial to the ultimate sales and performance of the company. For effective inventory management, a company needs to have a steady supply chain management plan, and the ability to plan smartly and make effective decisions on time. Therefore, overstocking and under-stocking, both can lead to far worse implications than expected for a company. It proves that the need for an effective inventory management system is imperative for the success and good performance of a company.
Apple Inc. & Dell Technologies
In this global era of free trade, companies have gained large volumes, and their size has multiplied as compared to the past times because of the far more opportunities regarding the number and quality of suppliers, markets, and labor available. Companies like Apple Inc. and Dell Technologies has reached the height of efficiencies regarding effective inventory management systems. These two reputable organizations are focused in this report to help understand the complexity of the inventory management systems. Management of inventory is part of their daily operations. The flagship products of Apples Inc. which constitutes its major percentage of the inventory include; iPod media player, Mac, Computers, iPhone Smartphone’s, iPod Tablets, and software like iWork, iLife, and iTunes. Dell, on the other hand, offers desktop computers, workstations, network servers, notebook computers, and storage products. It offers millions of possible product configurations which makes the major part of its inventory. It is for all the different products offered by the company. The company Dell has suppliers who themselves are huge companies like Sony, NVIDIA, Microsoft, and Intel.
Inventory Types
These both companies assemble their mentioned products in their assembly plants which are located in various parts of the world. Before this assembling, each part used to manufacture these products is purchased from suppliers across the world. Apple Inc. relies on its sole-sourced suppliers located in Asia, US and Europe for the manufacturing of its hardware parts. The assembly of all of the components of the products is done in Asia (Apple Inc., 2017, p. 13). The inventory thus includes the software and hardware parts for both companies in the form of raw material, then in the form of WIP and the finished goods products. Dell records its inventories majorly in products and components. It includes materials, supplies, product components, systems, sub-assemblies, and products (Dell Technologies, 2017, p. 8). Furthermore, it categorizes it as the Production material, Work-in-process and finished goods (Dell Technologies, 2017, p. 161).
Characteristics of Inventory
Both Dell and Apple are technology-based companies, and thus the shelf life for the products of both of these companies is very short. The companies have to deal with the risk of the obsoleteness of the products and thus cannot hold their product inventory for several years. Furthermore, the inventory for both of the companies is in very large numbers because of their large scale. For this purpose, the companies need to constantly remain updated on the latest inventory management software’s and adopt it in time. In the management of such huge inventories, effective management databases and techniques are employed by both companies.
Role of Inventory in Performance
Inventory plays an important and crucial role in the overall performance of the company. For understanding the scope of its importance, consider a situation in which your company gets a huge order from one of the new clients. Your warehouse only has, however, half of the required quantity. Thus, the client, who needs the order now, would look for another alternative like a competitor. It shows how your market can switch between you and your competitor only by well-managed inventory techniques. It also shows how one competitor can grab on your potential market share if you do not have enough inventory level. The unsatisfied customers will leave the company who cannot fulfill their demand on time.
Furthermore, overstocking of the wrong product, which is not in demand will cause tied up capital and incremental cost, declining your overall performance. Thus, all depends on the right stocking of the inventory. It shows that the right forecasting method used for the prediction of the demand for a product is very crucial here.
The efficiency of the company cannot be assumed by the large value of the inventory. A large inventory may show the wrong stocking of the products. It can also show that a huge inventory is stocked up which is out of demand. It can also predict the poor forecasting techniques employed by the company. The high work-in-process inventory also indicates operational inefficiency. It can also lead to obsoleteness, pilferage, and degradation of the inventory. On the other hand, the less holding of inventory can also indicate poor efficiency in the form of liquidity problems, poor forecasting, and lack of competent staff for converting of WIP into finished goods.
Layout and Their importance
Apple Inc. uses Just-in-Time inventory system to deal with its massive inventory. It considers inventory as a necessary evil and has opted for contract manufacturers for doing away with the manufacturing of its products. As per the JIT system, Apple holds only what it needs; this strategy implementation needs dedicated suppliers for its success. Substantially all of the product hardware components are manufactured by outsourcing partners in Asia, while some of the Mac computers are manufactured in Ireland and USA (Apple Inc., 2017, p. 10). For finished product distribution, the company uses national and regional retailers, cellular network carriers, and value-added resellers along with wholesalers,. It also directly sells to the educational, governmental, and enterprise consumers via its online and retail stores (Apple Inc., 2017, p. 13). The company has to typically order manufacturing purchase for its forecasted demand of products within a 150-day period (Apple Inc., 2017, p. 14). The company uses several outsourcing partners in the manufacturing of the sub-assemblies and final assembling and testing of the finished products. These partners are responsible for acquiring the components of the manufacturing process and provide finished products as per the demand forecasted by Apple Inc. The company uses its third-party facilities for holding of its inventories and reviews the inventory level on a regular basis depending on the demand level, product lifecycle, current sales levels, product development plans, and component cost trends (Apple Inc., 2017, p. 38).
Dell, on the other hand, uses built-to-order inventory system for the management of its inventory. It deals with several suppliers around the globe and has several processing facilities in which it manufactures its products (Dell Technologies, 2017, p. 17). The company processes the order after receiving it does credit checking and evaluate the financial credibility of the customer. The next step is to send order onwards to the assembly plant for the building of the products, for its testing and financial packaging. Then this order is shipped to the customer within five days after receipt of the order. Dell uses contract manufacturers as well for the manufacturing or assembling of the products for enhancing of the variable cost structures and cost-effectiveness. The process of manufacturing at Dell involves assembly, software installation, testing of functionality, and lastly quality control (Dell Technologies, 2017, p. 8). The company uses a very robust Supplier Code of conduct and manages recycling processes for the returned products (Dell Technologies, 2017).
The following layouts show how Apple Inc. and Dell Tech both are heavily dependent on their suppliers and distributors for their success. Thus, any disruption in this layout or any delay from the suppliers for Dell and from Contract manufacturers for Apple Inc can cause crucial implications. The layout at Dell Tech seems to be more customer-friendly as they have more control on the inventory stock as compared to Apple Inc who has to purchase its products from its contract manufacturers. The layout of Apple Inc offers more risk as it is dependent on its contractors; however, it also transfers the risk of holding the inventory to its suppliers.
Metrics to Evaluate Supply Chain performance
Inventory Turnover
It is one of the key metrics which can be used to evaluate the performance of the supply chain of a company. It measures how many times a company can turn its inventory around into sales or get replaced. The higher inventory ratio suggests, the higher performance of the company regarding its supply chain. It shows that the company can sell its inventory faster. Apple Inc. has an inventory turnover of 40.37 recorded in 2017 and 58.64 in 2016 (Morningstar.com, 2017). Dell Technologies, on the other hand, has inventory turnover of 23.42 recorded in 2017 (Nasdaq.com, 2017).
Days in Inventory
These metric shows how long it takes a company to sell its inventory. It also shows how much stock a company can hold in a given period. The lower this metric, the better the company is performing regarding its supply chain. Apple Inc. has Days in the inventory of 9.04 days recorded in 2017 and 6.22 days in 2016 (Morningstar.com, 2017). Dell Technologies, on the other hand, has days in the inventory of 18 days recorded in 2017 (Dell Technologies, 2017, p. 70).
Both of these metrics can be utilized to determine the demand for the patterns and identify any areas of performance for effective inventory management. Both companies should use effective, relevant forecasting method for demand prediction. For this purpose, enough investment should be made in the research and development of the most relevant and effective forecasting model. For improving the sales turnover, the companies should use these matrices.
Improvement Possibilities
Both companies can look for ways of affecting their operations and benefiting the customers more effectively. The best method to improve the inventory management is through adaptation of lean synchronization. Lean methodology is the new model which makes the supply chain methods leaner and more effective for the companies. We know that Dell Technologies has already employed Lean Six Sigma for ensuring their quality of designs and test processes (Dell Technologies, 2017, p. 8). They should also enforce it on their suppliers to enhance their component quality as well. Moreover, Dell has recognized that built-to-order layout used by Dell is losing its competitiveness in the environment where profits are moving towards lower margin segments. Therefore, it should look into moving to Build-to-stock models (Dell Technologies, 2017, p. 17).
Conclusion
It is concluded that effective inventory management is crucial for the expansion of the business. One cannot consider expansion without considering how it would manage the expansion in the form of increased inventory and increased customers. For this purpose, the importance of forecasting model is discussed. The whole inventory management systems are dependent on the demand forecasted by the companies. Furthermore, it is concluded that the relationship with the suppliers, contractors, and distributors is very important for effective supply chain management and consequence to the overall performance of the company.
References
Apple Inc. (2017). 2017 Form 10K. Apple Inc.
Dell Technologies. (2017). Form 10-K 2017 Dell Technologies. Sec.gov.
Dell Technologies. (2017). Supply Chain. Retrieved January 30, 2018, from Dell Technologies: http://www.dell.com/learn/us/en/uscorp1/cr-social-responsibility?s=corp
Morningstar.com. (2017). Apple Inc. Retrieved January 30, 2018, from Morningstar: http://financials.morningstar.com/ratios/r.html?t=AAPL®ion=USA&culture=en_US
Nasdaq.com. (2017). Dell Technologies Inc. Stock Report. Retrieved January 30, 2018, from Nasdaq: http://www.nasdaq.com/symbol/dvmt/stock-report
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