As a hired specialist responsible for the improvement of the company’s functioning, several recommendations should be given regarding the inventory reduction. There are multiple ways in which this task can be accomplished. Their choice depends on the peculiarities of the company’s functioning, its supply chain, and the way it works (Bragg, 2018). If to speak about Johnson Company, the elimination of obsolete inventory, along with improved forecast accuracy, can be considered a reasonable approach (Bragg, 2018).
At the moment, the organization’s warehouse is full of outdated DVD players. They tie up working capital and decrease development speed (Bragg, 2018). In such a way, Johnson Company should sell these devices at a reduced price. It may have a negative impact on short-term profits; however, in a long-term perspective, it will help to overcome the crisis and align the efficient functioning of the company by providing sources for the development of a new line.
Another factor under discussion is the adherence to a JIT system. It can be described as a just-in-time inventory system in a management strategy that presupposes the enhanced alignment of all raw-materials orders from suppliers in accordance with the current production schedules (Silver, Pyke, & Thomas, 2016). The given method as opposed to the just-in-case strategy in which producers prefer to hold large inventories to cover the marketing demand.
Johnson Company previously utilized this very strategy; however, now it is an appropriate time to switch to a new model. Several reasons support this decision. First of all, the warehouse is full as there are obsolete DVD players and no place for new products. Second, the time and costs of delivery of new devices will be reduced. For this reason, the company can be recommended to switch to the JIT model.
However, the choice of the method to work with the inventory demands reconsideration of relations with suppliers. Previously, the company ordered many devices to fill the warehouse and ensure that customers’ demand will be satisfied. The given approach will not work in the new environment. The firm should engage in continuous cooperation with its suppliers to inform them about the need for a particular product and ensure its on-time delivery (Silver et al., 2016). In such a way, these sorts of relations should be improved to guarantee that the efficient scheme will be created and all actors will benefit from their close cooperation.
One more problem arising because of the reconsideration of the company’s functioning is the risks associated with the elimination of safety stock. Thus, if there is no buffer to protect the company against shortages arising because of uncertainties in demand, Johnson Company can lose clients dissatisfied with the lack of needed products or delays in their delivery. To minimize these risks, the company should devote much attention to the continuous increase in the quality of forecasting to avoid shortage and, at the same time, enhanced cooperation with suppliers that provide needed products to the organization (Bragg, 2018). Better collaboration means reduced response and delivery time. For this reason, it can be considered an effective solution to the problem.
Finally, there is the problem of choice between recycling, remanufacturing, and refurbishing. The first one is the process of converting waste materials into new objects that can be used (Silver et al., 2016). Refurbishing is the renovation of obsolete things to make them work or look better (Silver et al., 2016). Finally, remanufacturing is the rebuilding of a certain product to the specification of the initial product with the help of reused, repaired, or completely new parts (Silver et al., 2016). Regarding the current focus of the company, recycling can be used as there is no need to repair DVDs or make them look better. The company should eliminate old products by using effective recycling techniques to create a background for its further evolution.
References
Bragg, S. (2018). Inventory management (3rd ed.). Centennial, CO: AccountingTools, Inc.
Silver, E., Pyke, D., & Thomas, D. (2016). Inventory and production management in supply chains (4th ed.). Boca Raton, FL: CRC Press.