GHANA INSTITUTE OF MANAGEMENT AND PUBLIC ADMINISTRATION

(GIMPA)

SUPPLY CHAIN MANAGEMENT

QUESTION:

How could a grocery retailer use inventory to increase the responsiveness of the company’s
supply chain?

BY:

Harrison Nimako - 12021801

13TH MARH, 2014

Inventory is considered a Trading asset in the balance sheet of the grocery shop. An effective

inventory management system thus leads to greater performance and profitability. Key is the

ability of the firm to reduce the Inventory (Stock) Days on Hand (IDOH) or Accounts Payable

Turnover (APT). These ratios are indicators of the ability of the grocery shop to quickly sell of

her stock for cash. All things being equal, a better ratio indicate greater sales figures resulting in

greater profitability. It also puts the shop in a better cash flow position to cater for any maturing

obligations.

Responsiveness can be defined as the “ability to react purposefully and within an appropriate

time-scale to customer demand or changes in the marketplace, to bring about or maintain

competitive advantage” (Holweg, 2005, p. 605). Customers want their orders when they make

them, not a day later. A failure of supply chain management to keep up with the ever increasing

customer standards will spell doom.

To achieve a greater responsiveness, the grocery owner may decide to stock up greater quantities

of the ‘fastest moving’ products. This information may be sourced from previous sales data

which my capture customer preferences, periods of peak sales etc. Such large purchases also

allow the shop to enjoy the benefits of economies of scale.

There is also the need to manage the trade-off between the cost of holding too much inventory

and the cost of losing sales due to not having enough inventories. This is vital for instances of

poor supplier response time, replacement of substandard goods, random demand etc.

There is also the need for the shop to hold seasonal inventory to cater for predictable peaks like

holiday seasons.
Finally the firm must create a comprehensive sourcing policy to determine the criteria for

selecting suppliers who meet the demands of their customer (in terms of quality and quantity)

In other to achieve this there must be a free flow of information throughout its supply chain from

the shelves to the supplier.

Care however has to be taken not to compromise on efficiency (in terms of storage cost and cost

of capital i.e. facilities). Another barrier is the perishability of the produce.