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Research of Overstocked Inventory


Companies are in business to provide goods or services and to make money. When a company has an overstock of its inventory, the company is losing money because the company has to pay taxes on the goods that are sitting in its warehouses taking up space. A company needs to be able to forecast accurately the demand for its product and keep just enough of a supply to fill the demand. When companies can operate on a system of filling orders as needed and keep inventories low, the companies are situating themselves to achieve financial success.

Purpose of Research

The purpose of this research is to determine if overstocking products is costing companies money. The slow economy has changed the thought process of many businesses. Orders for products have slowed drastically and items that companies would normally keep stocked for future orders are just sitting in warehouses. Relating to the same research, many of the vendors that distribute products used in producing many of the items are making the same deliveries, which in turn is leading to an overstock of items which are used in the making of the products. The overstocking of products is resulting in a loss of money and a loss of space in these companies.


This research problem is important because of the slowing economy. Businesses must be able to save money every chance they can get. When a company has overstocked a product, the product is costing the company money to store the product in a warehouse. The company must pay employees to store the product and take care of the product, especially if the shelf life of the product is limited. Another aspect of overstocking is if the company has too much stock, the overstocking could possibly lead to downsizing of the company because no need exists to produce any more stock. If the vendors are still delivering on normal schedules rather than reduced schedules, this could also cause the company to lose money if the product is already overstocked and not needed. The shelf life of the products from the vendor could expire while sitting so long in a warehouse waiting to be used and the company would have wasted money. The problem of overstocking could result in the loss of millions of dollars, jobs, and possibly the company itself.

Problem Definition

The economy is facing many problems and companies cannot afford to overstock their products. Overstocking is more than just producing more goods; overstocking is a waste of resources, time, and money. The problem seems to be clear; companies that are overstocking their products face big losses. However, the more complicated question is how can the overstocking be stopped?Defining the overstocking problem has become the focus of this research, and finding answers which will allow overstocking to stop and help companies to retain jobs for their employees as well as revenue and resources, instead of the companies losing them. Overstocking can be simply explained as the excessive production of goods, and a lack of consumers getting those goods, which leaves companies with their products and no revenue.

Overstocking can be controlled in three steps that companies must adopt in order to survive the economic crisis the market is facing. The three steps are Supply Flexibility, Production Flexibility, and Distribution Flexibility. Supply Flexibility consists of firms selecting vendors not only on the price and quality offered, but also on how they can serve the order, and the time it takes to fill the order, even last minute urgent orders. The capability of the vendor to meet the demands and needs of the customers is very important for firms. In Product Flexibility, “The traditional temptation of manufacturers to schedule long production runs or maximize batch or lot output is a fading norm in lieu of the growing fickleness of customers or end-users. Large batches mean higher inventories and limits how many items can be made available today, not to mention the burden of storage overhead and obsolescence risk” (Business World, 2008). Distribution Flexibility is similar to production flexibility, the ideal distribution flexibility is to ship the very same day that is going to be sold in a considerably short time, or taking into consideration the consumers’ need for available items.

Research Hypothesis

Research data provided from CIA Global Demographics Data Set is enormous to the effectiveness of managing logistics overstock globally because of the variables provided in the research (Lind, Marchal, and Wathen, 2008). Data consists of information on over 40 countries which are considered viable to world economics and global business. Possible outcomes that can result from the research are the placement of more effective ways to handle stock overages and ways to adjust the levels of stock as well (Lind, Marchal, and Wathen, 2008). Shipping schedules can be altered so the intervals between shipments are more fitting to the stock of the finished goods product mix. Incoming raw material orders may be offset as a result of the research findings as well.

The variables to be tested in the problem of stock overage are import rates, export rates, and how the workforce is to be measured against company sales and overall profit to the company’s bottom line. Specifically, a test can measure inventory requirements needed to satisfy customers for the next three months; thus, the objective is to reduce overhead costs as a result of overstocking. Variables should be considered as well for current inventory stocks against projected stocks ensuring that inventory balance adjustments do not result in penalties for missed shipments or overtime costs related to low inventory stock.

The level of measurement for import and export rate is nominal, ordinal, and interval because product types will measure in ranking for customer requirements and critical customer needs. The measure concerning stock overage is subject to being nominal because sometimes forecasting may require communication between business partners in deciding best practices in business. Ordinal and intervals apply as a level of measurement because inventories will be grouped in ranking by customer, country, receiving, and finished goods shipping dates. Interval measuring allows businesses to anticipate shipping frequencies, thus determining frequency enables better decision making in restocking.

The measure scales for variable import inventory, export inventory, workforce and business profits and losses are interval and ordinal through the use of pie charts and histogram Pareto charts. By using interval and ordinal scales, scales have a significant zero point and variables are numerically proven. Charts such as Pareto and pie charts reveal problem areas that need immediate attention that may have been unknown without input variables. Focus groups provide a goods means of providing immediate attention and feedback to business partners handling business issues related to stock inventory as a result of business changes related to research and improvement implementation.

Results of Research

In order to remain profitable and successful, companies must figure out how to keep their inventories low and not allow the inventories to become overstocked. When companies perform research and use the correct data to control their inventories, they are also keeping their personnel usage under control and are saving money not only in the inventory area but also in the cost of the personnel to operate the inventory area. Once the companies master this concept they will have learned how to keep their companies operating lean and profitable.

References

Business World (2008, March). Helping you make more money. Retrieved February 8, 2009, from ProQuest Newsstand database.

Lind, Marchal, and Wathen. (2008). Statistical Techniques in Business & Economics, 13th edition. New York, NY: McGraw-Hill

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