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What is it meant by inventory management? Inventory management
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What is it meant by inventory management? Inventory management answers the

question of how much inventory is needed to buffer against the fluctuations in forecast,

customer demands and supplies delivers (Viale, 1996). In the world of food inventory

management is also looking at what that food cost is, the quality of that food, and how

to reduce waste.

Why do we manage the inventory? At Herschend Family Entertainment the food

division does an inventory every four weeks. The goal is to reconcile potential conflicts

in a timely matter. These conflicts can include:

1)

Maximizing Customer Service

2)

Maximizing Efficiency of Purchasing and Production

3)

Minimizing Inventory Investment

4)

Maximizing Profits

A Closer Look at the Four Objectives of Inventory Management

Objective 1 – Maximizing Customer Service

Herschend Family Entertainment is committed for more than half a century to Creating

Memories Worth Repeating ®; we work daily to create wholesome, immersive

entertainment experiences with soul and depth. Experiences for every generation of

your family, sometimes lighthearted, and always distinctive, our award-winning theme

parks, entertainment and attractions aim to inspire happiness and family bonding

(Herschend Family Entertainment - About, 2014).

With this corporation motto you will see that customer service is our number one

objective. Shops have to order supplies daily. When they make their orders they need

to take in affect the weather, projected attendance, number employees to use, type of

festival going on, what is going on in the local communities and their budgets. This is a

lot of information. The more accurate the forecasting, the less inventory is needed to

meet customer service demands. By carrying less inventory, the equipment needed to

store the food will be reduced thus reducing inventory cost.

Objective 2 – Maximizing the Efficiency of Purchasing and Production

The shop general gets orders daily, otherwise known as Just-In-Time deliveries. The

Just-In-Time strategy approach to inventory and product handling, companies can often

cut cost significantly. Inventory costs contribute heavily to the company expenses. By

 

 

 

minimizing the amount of inventory you hold, you save space, free up cash resources,

and reduce the waste from obsolescence (Just In Time, 2014).

However, there are times when buying product in bulk and storing until needed is a cost

savings and should be looked at by management as an alternative to just-in-time

strategy. Our corporation food division at 26 locations in ten states increases our buying

power and should be taken average whenever possible (Herschend Family

Entertainment - About, 2014). This buying power can be used to gain bid pricing for all

locations thus locking in pricing for products for twelve months, thus avoiding price

fluctuations.

Objective 3 – Minimizing Inventory Investment

Inventories tie up cash that the company could use elsewhere in the business. Excess

inventory can create a negative cash flow, something that must be avoided. This is why

the financial people work to keep inventories as low as possible (Viale, 1996). By using

Just-In-Time strategy on most products bought in the food shops can achieve the

financial draw of not tying up cash reserves.

Example: There are 27 food shops at Silver Dollar City of those shops there are seven

shops that sell french fries. Let’s say that tomorrow the forecast for attendance will say

each of those shops will need four cases of French fries at a cost of $20 per case.

Shop

Forecast

Cost

Shop

Ordered

Cost

Difference

Forecast/Ordered

2013

4

$80

4

$80

0

2014

4

$80

6

$120

$40 over

2019

4

$80

3

$60

$20 short

2023

4

$80

10

$200

$120 over

2034

4

$80

12

$240

$160 over

2036

4

$80

4

$80

0

Total

24 Cases

$480.00

39 Cases

$780

$300 over

ordered

This example shows by all the shops not ordering to forecast the park has used an extra

$300 in inventory cost. Shop 2019 under ordered and may run into a shortage thus will

not meet customer expectations. Shops 2014, 2023, and 2034 all over ordered and will

need extra space to keep the inventory, could lose product due to freezer overloaded,

and/or have an extra cost to return to supplier. You may say it is not that much of a

cost. However, if all the shops did that with several different products you can see the

cost grow rapidly.

 

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