Database Reference
In-Depth Information
Thus, in offering-based enterprise, the local functional efficiencies and strategies are truly at the
cost of increased inventory and inventory-carrying costs at the enterprise level. However, in the
mass customization (i.e., customized marketing) approach, enterprises seek minimization of
inventory because this not only reduces the costs but also enhances the organization's flexibility,
that is, the ability to respond to changing conditions. But an increase in flexibility also increases
the complexity of coordination; the enterprise has to shift from the deterministic planning and
scheduling management approach to the protocol and assignment method of coordination.
However, inventory could change from a large user of capital (because inventory
turns slower than payment terms) to a source of capital for financing retail outlets by
dramatically increasing the normal inventory turns to much more rapid inventory
churns. An inventory churning 24 times per year generates cash flow fast enough to
provide its value in working capital to help finance the building of a new store. One can
conceive the concept of
Chart of Inventory
in analogy with
Chart of Accounts
that involves the
use of a hierarchy of actual and virtual stores to segregate and aggregate inventory of various
types like nature (aging, damaged, returns, rejects, in-transit, etc.) and usage (moving or
nonmoving). This has many advantages like independent valuation, stock taking, effective
inventory control, and stock analysis. Normal transactions can be performed at either of
these storage locations—actual or virtual.
As pointed out by Frank Davis, a customer-responsive enterprise does not have the luxury of
inventory to buffer real-term variations and reduce management complexity. Although capacity
has to be scheduled in anticipation of customer requests, the
use
of capacity can only be scheduled
after receiving such a customer request. If the provider scheduled too much capacity, the excess
capacity gets wasted because capacity cannot be preserved in an inventory. But, on the other hand,
if inadequate capacity is scheduled, some users are likely to go unserved. As the service delivery
costs are typically less than 10% of the total delivery costs explained earlier, the profitability of the
enterprise depends on reducing the fixed and scheduled capacity costs and maximizing the percent
utilization.
For minimizing wasted capacity, responsive enterprises have to enable more flexible schedul-
ing in the short term and higher utilization in the real term. This can be achieved through the
following:
◾
Economies of scope
: Approach that allows the provider to increase capacity utilization (e.g.,
percentage billable hours, load factors, occupancy rates) through cross-training of the
workforce.
◾
Economies of use
: Approach that seeks to utilize every unit of scheduled capacity to generate
revenue to minimize the amount of non-revenue-generating and wasted capacity.
◾
Economies of modularity
: Approach that seeks greater flexibility to schedule capacity by
developing modules so that less capacity can be scheduled when the demand is expected to
be low. The more modular the organizational structure is, the more efficiently the enterprise
can respond to variation in expected capacity utilization. One way of increasing modularity
is through networking.
◾
Economies of networking
: Approach that seeks to allow enterprises the flexibility to focus on
the changing customer needs rather than to be burdened with finding a revenue-generating
