For Professor KimWood

Inventory Management

Introduction

Inventory management refers to the controlling and overseeing of the storage, use, and ordering of various components, which an organization will utilize in the production of different items that it will sell. In addition, it involves the controlling and overseeing of finished products quantities for sale. It is worth noting that the inventory of a business is among its major assets since it represents a huge investment, which is tied up (Müller, 2011). Hence, this investment is tied up until these items are sold or utilized in the production of various items that will be sold. Ideally, it costs money to insure, track, and store inventory. Inventories should be managed effectively since mismanagement could create substantial financial problems for an organization, as well as lead to an inventory shortage or an inventory glut. In essence, inventory management refers to the supervision of stock items or inventory (non-capitalized assets) (Harrison, Lee, & Neale, 2012). This study will elucidate two major manufacturing organizations, namely, Dell and Nike, as well as expound on their inventory management frameworks and expertise.

Nike’s Inventory Management

Nike is a world-renowned sports apparel brand which manufacturers sports accessories, equipment, and accessories. It is paramount to note that delivery meticulousness in a multi-jurisdictional and multi-product company such as Nike is very critical. Subsequently, a proper inventory management minimizes price markdowns, reduces inventories, and improves profit margins. It also ensures that the customers/clients receive the correct product variety on time (Narayan, 2009).

According to authoritative sources , Nike’s inventory management system including its supply chain was able to move nearly 900 million units last year. Additionally, its manufacturing network comprises of more than 700 factories, which are located in 42 countries. Conversely, each of Nike’s products moves from mainly 57 distribution centers, which are located across a network of 140,000 retail doors and 18,500 accounts. Nike primarily utilizes lean manufacturing which has enabled it to reduce its waste production and increase its revenues (Müller, 2011).

Most importantly, Nike does not own any manufacturing factories for its apparel and footwear products, which make up nearly 88% of the firm’s revenues. Instead, the company’s manufacturing functions are outsourced to mainly third parties since this strategy reduces huge amounts of costs, and the company recoups revenues. A majority of Nike’s raw materials in its supply chain are mostly sourced mainly in the various manufacturing host countries through utilizing independent contractors (Narayan, 2009).

Nike’s Key Manufacturing Thrusts

In addition, Nike is among the industry-defining pioneers of the manufacturing outsourcing strategy. Currently, the company is exploring new innovative manufacturing methods so that it can effectively customize its products specifically on an exceptional scale. Ideally, Nike’s key manufacturing thrusts include lean manufacturing, material consolidation, as well as and manufacturing modernization and innovation (Müller, 2011).

On the same note, the company introduced the lean manufacturing method so that it could capitalize on its numerous advantages. By the conclusion of the company’s 2013 fiscal year, it had manufactured various products using its lean lines, which included 85% footwear products and 70% to 76% apparel. This led to extra savings of nearly $0.15 per unit, which was achievable through lower waste and better labor productivity. Subsequently, its material consolidation manufacturing thrust enabled the company to reduce the vendor numbers through which the company sources its materials. It was also able to reduce the materials utilized in manufacturing its products, which translated to more revenues to the company. Its manufacturing modernization and innovation manufacturing thrust assisted the company to come up with unique products that the market needed (Harrison, Lee, & Neale, 2012).

Footwear Manufacturers

It is worth noting that Nike’s footwear is normally manufactured in other regions outside the U.S. Independent contract manufacturers that mostly operate several factories are tasked with manufacturing the company’s footwear products. Reliable statistics shows that the company in its 2014 fiscal year was supplied with footwear products by nearly 150 footwear factories, which were located in 14 countries. In essence, contract factories in Indonesia, China, and Vietnam respectively manufactured approximately 25%, 28%, and 43% of the total Nike’s footwear. Additionally, the largest solo footwear factory mainly accounted for roughly 5% of the total Nike’s brand footwear production. These are huge numbers, which portrays that the company’s inventory management is exceptional and lean manufacturing has greatly assisted the company to achieve its targets (Müller, 2011).

Apparel Manufacturers

Similarly, to Nike’s footwear, various independent contract manufacturers mainly manufacture all of the company’s apparel in regions, which are outside the U.S. Nike in the fiscal year 2014, it was supplied by nearly 430 apparel factories that operated in 41 countries. Malaysia, Pakistan, Sri Lanka, Indonesia, Thailand, Vietnam, and China accounted for the majority of the apparel production. Moreover, the top five contract manufacturers for apparel combined accounted for nearly 34% of the company’s apparel production. One major apparel contract manufacturer produced 10% of these products (Narayan, 2009).

Third-party Licenses and Nike’s Distribution Centers

Nike has various license agreements, which permit certain unaffiliated parties to sell and manufacture using Nike-owned trademarks, as well as particular applications, digital devices, apparel, and other equipment. This other equipment is specifically designed for various sports activities. The company has five major distribution centers mainly in the U.S., which are located in Tennessee, Memphis and 3 others that are operated on a lease basis. At the end of Nike’s 2014 fiscal year, it had 16 distribution centers, which were located outside America. Nike brand equipment products and apparel are also shipped primarily from its key distribution center situated in Foothill Ranch located in California. Hurley and Converse products are usually shipped mainly from Ontario, California (Müller, 2011).

In the same suit, the company distributes its different products through three main channels, which include selling to global brand divisions, through DTC (direct-to-consumer) sales and through selling its products to wholesalers. Ideally, these wholesalers are located in the international markets and the U.S. The DTC sales include selling through factory retail and in line outlets, as well as e-commerce sales particularly through its website known as www.nike.com. Nike has also strived to create various category-specific retail destinations through collaborating with different retailers, which include Intersport, JD Sports, and FL (Foot Locker, Inc). This has greatly boasted the company’s inventory management system since its inventories do not stay long in their warehouses, which reduces costs and increases revenues (Narayan, 2009).

Dell’s Inventory Management

On the other hand, Dell is an accessories and laptop manufacturing company, which excels in lean manufacturing. It is evident that the company has grown largely through increasing its customer base, as well as through various acquisitions since it was incepted. It has undertaken notable acquisitions and mergers such as Perot Systems in 2009 and Alienware in 2006. It is worth noting that Dell’s product line includes storage products, workstations, network servers, notebook computers, and desktop computers. It has numerous suppliers such as Sony, which provides it with monitors, Nvidia that provides it with graphic chips, Intel for its microprocessors, and Microsoft for Windows (Müller, 2011).

Dell has been a very successful company because of its combination of three major factors, which include exemplary inventory management, direct sales, and supplier integration. In essence, this has enabled Dell to achieve maximum effectiveness at a minimum cost. Dell has unique core elements for its inventory management strategy, which include direct sales, customer service, market segmentation, partnerships with suppliers, mass customization, and JIT (Just-in-time) component inventories. In addition, Dell utilizes extensive information and data sharing with both its customers and supply partners as part of its inventory management strategy. Mass customization has enabled Dell to deliver the precise product that a customer wants. The JIT components inventories involve the company’s fast introduction of latest inventory technology for its operations (Narayan, 2009).

In practice, the JIT inventory system ensures that Dell the precise amount of its goods arrive at their destinations at the right moment that they are needed, thus not earlier or later than expected. Dell re-engineered its supply chain and introduced the JIT system, which enabled the company’s goods to be purchased or manufactured Just-in-Time for sale. Hence, it pioneered a new method of selling and making its computers. Ideally, Dell re-engineered its supply chain for the purposes of producing computers with the precise features, which a customer ordered, and ships the products within 24 hours after taking the order. Ultimately, Dell invests minimal amounts of money in the inventory, which portrays that it will have no products that will be wasting time in its inventory. Thus, products will be produced only according to the orders that the company receives, and its key to a successful inventory management system is having minimum inventory (Harrison, Lee & Neale, 2012).

Dells’ inventory system mainly focusses on two aspects, which are its JIT inventory management system that takes three days, and it focuses on the speed of its inventory delivery process. The instruments for Dell’s inventory model include a value chain program, build-to-order model, and the revolver or the SLCs (Supplier Logistics Centers). Its built-to-order model ensures that Dell receives both the order and money, starts to build the product utilizing the received money to purchase various products from the supplier. The SLCs or revolvers are mainly small warehouses, which are situated within a short distance of Dell’s assembly plants. The suppliers own the revolvers whereby they charge Dell indirectly through an agreement known as component pricing. Additionally, Dell has a unique VMI (vendor-managed-inventory) plan with its suppliers whereby the suppliers decide when to order and how much inventory should be ordered. On the other hand, Dell sets the target inventory levels, as well as records the deviations of the suppliers from the targets. Furthermore, Dell withdraws the inventory mainly from the revolvers when required after every two hours (Müller, 2011).

Types of Layouts

It is evident that both Nike and Dell utilize the product layout (assembly lines or production lines), process layout, cellular manufacturing layout (CM), and the fixed-position layout (Harrison, Lee, & Neale, 2012). These companies utilize these layouts because they are not directly involved in the manufacture of their products. For instance, Nike uses contracted manufacturers for its apparels and footwear whereas Dell relies on suppliers to provide it with various components so that they can make a customized product. Nevertheless, it is also evident that Dell also utilizes the hybrid layout when it is building the customized product. Thus, it purchases those various parts from different suppliers but eventually builds the finished product (Narayan, 2009).

Two metrics

There are mainly two metrics, which can be utilized to evaluate the supply chain performance for Nike and Dell especially since they do not deal directly with manufacturing their products. Dell has to depend on various suppliers for various components while Nike depends on contract manufacturers. Hence, these two metrics include inventory turnover and cycle time. In essence, inventory turnover mainly measures how fast the company uses up, as well as replenishes its inventory (Müller, 2011).

Cycle time measures how fast the suppliers or the company can complete a certain inventory process. Ideally, this starts from the time customer places an order to the time he/she receives the product. These two metrics are integral to these companies so that they can ensure that they are operating at required levels. Most importantly, areas of improvements include having reliable suppliers and contract manufacturers. The two companies should also ensure that they have supplements, which they can utilize in emergency cases (Narayan, 2009).

Methods of Improvement

These two companies can improve their inventory management systems in various ways. For example, Nike should ensure that its contract manufacturers have inventory reserves, which can be utilized when the company urgently requires products. This will also be beneficial in case a problem takes place during the contractors operations, which might affect Nike’s supplies. On the other hand, Dell should ensure that suppliers maintain their efficiency and speed of delivery since challenge could adversely affect the company. However, its JIT system has been able to tackle such issues although it needs to be regularly checked since it can fail to operate due to lack of maintenance (Narayan, 2009).

Conclusion

In summation, Nike and Dell are two manufacturing companies that have noble inventory management systems, which are unique. Hence, none of them directly manufactures their products but depend on other parties such as suppliers and contract manufacturers. It is worth noting that Nike had an inventory system previously, which led to huge losses, and the company was able to learn from that lesson whereas Dell utilizes the JIT inventory system that is commendable.

References

Harrison, T. P., Lee, H. L., & Neale, J. J. (2012). The practice of supply chain management: Where theory and application converge. New York: Springer.

Meca, A., & Timmer, J. (2008). Supply Chain Collaboration. Supply Chain.

Müller, M. (2011). Essentials of inventory management. New York: AMACOM.

Narayan, P. (2009). Inventory management-principles and practices. Place of publication not identified: Excel Books.

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