Inventory Management

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Inventory Management

Introduction

The paper will examine the inventory management processes of two service companies, namely Wal-Mart and McDonald’s. It is clear that both of the service companies have extensive supply chain management processes that incorporate efficient and effective inventory management procedures. In the past few years, McDonald’s has been able to come up with effective inventory management systems that include forecasting demand and controlling stocks for the raw materials (Rushton, Croucher, & Baker, 2014). Such inventory management processes help in planning the supply of raw materials and finished products in the company. On the other hand, Wal-Mart’s inventory management has been successful. This is because an effective inventory management plan of Wal-Mart is of critical importance. Wal-Mart is recognized for their ability to use technological applications for inventory management process. Therefore, both McDonald’s and Wal-Mart Inc. have a successful inventory management process and plan that mainly relies on the adoption of technology.

Types of Inventories

The two companies have different types of inventories that are being managed. At Wal-Mart Inc., the types of inventories include the inventories for long-term programs, raw materials, raw materials and supplies, work in process, finished goods, LIFO reserves, and other inventories and supplies. The essential inventory characteristics include the tracking of inventory. The tracking of inventory helps in understanding the amount of inventory remaining in the organization (Jacobs & Chase, 2013). Other significant characteristics in the inventory management include the avoidance of excess inventory, cash flow problems, and the maintenance of sufficient inventories.

At McDonald’s, the types of inventories include the raw materials, work in progress, finished products, and the use of stocks. The raw materials explain the ingredients which will be used in the production of the finished products. For example, McDonald’s has buns, beef patties, and packaging. The raw materials are usually delivered regularly once a week. The sections of raw materials include frozen, chilled, and ambient foods. The work in progress (WIP) defines the stocks which are in the process of being transformed into finished products. Big Mac comprises of lettuce, cheese, onions and other small amounts of seasoning. The finished products are usually defined as products that are ready for sale to the customers. The restaurant stocks a wide range of products which are ready for sale. The finished products usually include Big Macs and side salads among others.

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Integration of the Goods and Service Design Concepts

Wal-Mart Company has a strong integration of the goods and service design concepts. The company uses some of the designs such as the just in time inventory management systems. The concept is aimed at reducing wastage and excess inventory within the organization. Other approaches include the use of vendor managed inventory concept that is critical for improving the flow of information from the company to suppliers. It allows the suppliers to learn when to supply extra goods to Wal-Mart Inc., while the organization controls and monitors the actual transit of products from the warehouses to stores. On the other hand, McDonald’s has a strong network of promoting the integration of its goods and service concepts. For example, the company has a network of talented and well-trained employees who are regularly supervised.

The supervision of the restaurants is keen on improving the regular communication with the aim of enhancing the management of the inventory appropriately. Other goods and service concepts include the daily demand for the finished products as well as the prediction of the future demand based on the future sales projections and past performance. McDonald’s understands the need to use these goods and service concepts to integrate communication and improve the overall management of inventories. The assessment of the service and product decisions helps in promoting the overall management of the inventory systems in the long run. Both companies recognize the need for proper layouts such as the job design, technology, and organizational structure. For example, the facility location and layout at both companies helps in improving the quality of services delivered to the consumers.

Role of Inventory

In both companies, inventory plays a critical role in promoting the performance, customer satisfaction as well as the operational efficiency model of the company. For example, the inventory would be able to come up with critical systems for enhancing the distribution of products. It helps in reducing the potential for shortages in the company. When the demand is high, the inventory will help in absorbing the increase in demand (Jacobs & Chase, 2013). If the company does not have adequate inventory, the customers will shift to the rival companies. Thus, inventory plays a vital role in ensuring customer satisfaction as it guarantees that the customers have access to quality and sufficient finished products. While reducing shortage, inventory gives the company an opportunity to deliver products on their demand with much efficiency.

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Types of Layouts

At Wal-Mart Inc., the different types of layouts found in its service operations include the shop layout, warehouse layout, product and service layouts, and the data warehousing layouts. Regarding Wal-Mart layouts, the shop layouts are used in improving the customer experience which is an important factor. This is because the operations of the retailer are carried out in the supercenters, discount stores, and markets. Such locations indicate the nature of the shop layouts aimed at improving the customer experience.  

Unlike McDonald’s layouts, Wal-Mart has an appealing product and service layouts aimed at attracting the customers. The products are arranged well in the stores to attract customers. The warehouse layouts are also important as they ensure that the company can access the finished products within the shortest time possible. Wal-Mart has large warehouse covering stores in the state. The data warehousing layout of the company provides a network for the company to store inventory with suppliers (Rushton et al., 2014). Wal-Mart Inc. uses data warehousing layout to improve the supply of inventories to the stores.

On the other hand, McDonald’s layouts include scheduling of the products, space layouts, location layouts, and capacity designs. The location layouts of McDonald’s are aimed to ensure that the company sets up stores with maximum market coverage. The location layout is important in ensuring that the customers have access to the desirable products. The scheduling layouts of McDonald’s ensure that the company has a proper plan for the products to improve inventory management.

Unlike Wal-Mart Inc., McDonald’s relies on the capacity design to plan for the available resources within the organization. It is useful for improving the overall efficiency of the production process. Such aspects are critical for maximizing the efficiency of utilization of the available capacity. The company also faces challenges in terms of the proper management of workplace space. The space layouts are meant to improve the utilization of space. Unlike Wal-Mart Inc., McDonald’s is keen on improving the space allocation for the different business units. The four layouts of the two companies show the differences in layouts depending on the nature and mission of the company.

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Supply Chain Performance Evaluation Metrics

In both McDonald’s and Wal-Mart Company, there are various metrics that can be used to evaluate the supply chain performance. The metrics include supply chain cycle time and the inventory turnover. The supply chain cycle time usually measures the time that would be spent for filling the customer orders when the inventory levels of the company remain at a zero level. The metric is important in measuring the maximum efficiency of the supply chain processes in the companies. A short cycle indicates that the company is efficient and has an agile supply chain that can respond to different consumer needs (Jacobs & Chase, 2013). The metric is useful for recognizing the major concerns in the company and thus giving the company a competitive advantage. It is recommended for the two companies to improve their efficiency in the supply chain to lower the supply chain cycle time. It would also reduce costs associated with the prolonged supply chain cycle periods.

Inventory turnover is another common metric of measuring the performance of the supply chain process. It measures the number of times at which the inventory cycles changed within a year. It is computed by dividing the costs of goods sold by the average inventory. It helps in determining the amount of inventory of the company idling without proper usage. A higher level of inventory turnover usually shows an efficient supply chain. Companies with lower inventory turnover should make efforts to improve their supply chain. To improve the inventory turnover, it is suggested that the company should rely on the inventory concept such as just in time approach that ensures minimal stocks within the organization. The company should avoid storage of inventory within its warehouses without demand from the customers. Both companies need to improve inventory turnover through the use of technology to improve the inventory management as well as enhance the efficiency of the supply chains.

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Ways to Improve Inventory Management

Each of the two companies needs to adopt the various ways to improve their inventory management processes without interfering with the operations and the customer benefit packages. McDonald’s has made significant progress in improving its inventory management process. However, there is a need to improve the inventory management process further to enhance efficiency and effectiveness in handling inventories. One of the ways to make improvements is inventory optimization. The management at McDonald’s should focus on the optimization of the inventory. It would help in reducing excess inventories in the organization as it will make sure that only the right value of the stock is stocked in the right place at the appropriate time. The use of an efficient inventory management platform is critical. This is because the platform would provide the appropriate data control and analytics critical for promoting accurate inventory optimization. Thus, McDonald’s should come up with inventory optimization platforms to improve the control of the stocks.

The use of the real-time analytics of the inventory records is another important option in improving the accuracy of forecasting the sales levels within the organization.  It gives McDonald’s the ability to see the whole picture of the inventories and make the necessary adjustments. The benefits of the real-time data analytics include promoting the company’s efficiency and profitability (Krajewski, Ritzman, & Malhotra, 2013). If McDonald’s gets more data about the inventory trends, they are likely to succeed. Most importantly, it will be important to develop individual supply and demand programs and plans. Such plans are critical for offering solutions for growth and expansion of the supply chain networks in the long run.

 Additionally, McDonald’s should seek to exploit the opportunities provided by the use of mobile technology. Mobile technology would provide the company with a high level of flexibility critical for improving the inventory management process in the organization. This is because as the technology advances, there is a need for more intuitive control. For example, the use of SaaS platform is useful as it lowers the human errors and labor challenges within the organization. Thus, the accuracy of the inventory data is critical for promoting the access to quality inventory data and information. McDonald’s should use these recommendations to support the overall improvement of the inventory management process at the organization.

 On the other hand, Wal-Mart Inc. should seek to adapt perpetual inventory systems with lean inventory processes and practices. The lean inventory techniques would help the company to reduce the wastes related to the storage and holding of inventory. This is because it involves the use of set principles and processes to lower the negative impacts of aging, and stocking processes within the organization. Wal-Mart Company should also seek to revamp their supply chain processes (Heizer, Render, & Munson, 2016). The renovation of the supply chain process is critical for upstream improvement such as the use of online networks. The overhauling of the entire inventory management process at Wal-Mart Company would help in reducing the amount of inventory as well as improving the stock levels and sales within the company. The use of technology is inevitable in the recovery process of the company. It will involve the use of RFID technology to promote the distribution of products. It will also help in improving the visibility of the inventory and the accuracy of accounting for the inventory investments. The given recommendations are critical for helping Wal-Mart Inc. to improve their inventory management processes.

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Conclusion

The two companies, McDonald’s and Wal-Mart should make efforts to maintain improved inventory management systems. Such efforts will help in improving the efficiency and effectiveness of the inventory management and the overall supply chain processes within the companies. The metrics of evaluating the supply chain performance useful for the companies include supply chain cycle time and the inventory turnover. The two metrics would give the management an opportunity to understand the progress and performance of the supply chain process. For example, Wal-Mart should implement the perpetual inventory systems along with lean inventory processes and practices. The lean inventory techniques would help the company reduce the wastes related to the storage and holding of inventory. The systems will be useful for the overall inventory management improvement efforts and initiatives. On the other hand, the management executives of McDonald’s should focus on the optimization of the inventory. It will help in reducing excess inventories in the organization.

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