Please respond to each students discussion posts.
Student 1(Nebras):
Define inventory and discuss why inventories are maintained. What are the Inventory Models
Inventory is defined as any goods or assets among the business which are available for future sale to customers (Keller & Kotler, 2015). “Generally, inventories are physical goods used in operations and include raw materials, parts, subassemblies, supplies, tools, equipment or maintenance, and repair items” (Keller & Kotler, 2015). Maintaining inventory is necessary due to fluctuating demand. “Customer demand is most often highly variable and uncertain. Lack of sufficient inventory can cause production lines to shut down or customers to become dissatisfied and purchase goods and services elsewhere” (Keller & Kotler, 2015). Inventories enhance the organization’s assets by maintaining stock to effectively meet demand and prevent stockouts. There are four basic models of inventory which include ABC analysis model, EOQ model, Single period inventory model, and fixed period model (Keller & Kotler, 2015). “ABC analysis is based on the Pareto Principle which uses the 80/20 rule. When applied to the business sector, this may mean that 20% of customers generate 80% of the revenue” (Ionos, 2019). It categorizes items being analyzed into 3 groups based on importance. “The economic order quantity (EOQ) model is a classic economic model developed in the early 1900s that minimizes the total cost, which is the sum of the inventory-holding cost and the ordering cost” (Keller & Kotler, 2015). The fixed period model is a system “in which the inventory position is checked only at fixed intervals of time, T, rather than on a continuous basis” (Keller & Kotler, 2015). “The single-period inventory model applies to inventory situations in which one order is placed for a good in anticipation of a future selling season where demand is uncertain” (Keller & Kotler, 2015).
What is the difference between yield management and revenue management for service-based organizations? How can service companies carry labor inventory? Could there be a just-in-time labor model? What would that organization look like?
“Yield management is a pricing strategy, which is commonly utilised by businesses in hospitality, air travel and other tourism related fields, in order to generate maximum revenue from a perishable inventory (e.g. hotel rooms, or airline seats)” (Revfine, 2022). On the other hand, revenue management refers to a similar tool, although, it involves maximizing earnings encompasses aspects of delivery of service. “RMS consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.” (Keller & Kotler, 2015). Service companies carry labor inventory costs when the number of services providing staff exceed demand which causes a surplus in labor. Just-in-time labor model is possible in the service industry. This will require hiring temporary workers or contract workers in a fast-paced approach to cover current needs. The organization would consist of a limited number of permanent employees and contract-based temporary employees. This is cost-effective as the company isn’t burdened with more workers than it needs.
Student 2 (Tyler):
DQ1 Define inventory and discuss why inventories are maintained. What are the Inventory Models you learned in chapter 11.
The text states “inventories are physical goods used in operations and include raw materials, parts, subassemblies, supplies, tools, equipment or maintenance, and repair items.” (Collier, 2016, p.218) Companies need to understand the most efficient level of inventory to meet the needs of its operations. In the event a company sells out its inventory, it could be losing out on potential sales and create customer dissatisfaction. On the other hand, maintaining too high of an inventory leads to waste and increased costs to maintain warehouses used in storage. Inventory managers need to understand how much inventory the right amount is just to maximize revenue while minimizing cost at the same time, thus maximizing profits.
Product Marketing Manager, Abby Jenkins, outlines 13 types of inventories including “raw materials, component, work in progress, finished goods, maintenance, repair and Operations (MRO), packing and packaging, safety stock, decoupling, cycle inventory, service inventory, transit, theoretical, and excess inventory.” (2021) Inventories are maintained for a purpose. Restaurants maintain just the right amount of inventory to make meals but holding too much inventory can lead to perishable items expiring and being thrown away.
Manufacturing companies can maintain greater excess since items are less likely to expire, and some materials may have longer lead times leading to purchases of greater quantities than needed at any given moment to maintain for future use. Every type of firm can maintain greater or less inventory depending on the goods and cost-benefit analysis of maintaining extra stores.
There are different inventory models. The EOQ model (economic order quantity is designed to minimize cost by ordering an entire piece of inventory at one time under a single SKU with a constant lead time for an item with a demand that is constant and continuous. The constant cycle inventory requires purchasing or producing greater quantities than may be needed of a good that has demand for immediate use or to is purchased. There is also a single-period inventory model where a good is purchased while expecting demand for the good in some future period, such as holiday seasons, or during periods where a good may be more highly desirable. The final is a fixed period inventory system.
DQ2 What is the difference between yield management and revenue management for service-based organizations? How can service companies carry labor inventory? Could there be a just-in-time labor model? What would that organization look like?
“Revenue management system (RMS) consists of dynamic methods to forecast demand, allocate perishable assets across market segments, decide when to overbook and by how much, and determine what price to charge different customer (price) classes.” (Collier, 2016) Yield management on the other hand takes a different approach where managers have to understand timing in selling or providing service to a customer to maximize the sales opportunity. In San Diego, there are many tourists who visit the city to take advantage of the weather, beaches and many other things going on in the area during the season. As such, many hotel rooms will strategically book these visitors by increasing costs, sending out emails to potential visitors to attract attention, and ultimately maximizing sales that that particular moment. Demand during the “high” season is always at its greatest at that point in time. Companies will use certain data analytics to adjust pricing and offerings to time the market just right. Yield management typically falls under revenue management systems as a specialty.
During the holidays, the just-in-time paradigm allows for retail companies to hire seasonal employees to help with the increased demand of that time period. These additional employees typically will not be hired on full time and they will be temporary employees often laid off soon after the holiday rush is over. Many of these employees sign temporary contracts that give them an estimated time period of their employment. There is typically a permanent staff that oversees the seasonal staff and prepares them with training that is generalized around the specific time period. This can be called just-in-time labor model.
