Fantasy Boutique is a medium-sized clothing store that produces and sells stylis
ID: 460176 • Letter: F
Question
Fantasy Boutique is a medium-sized clothing store that produces and sells stylish batik clothing and other traditional clothes. The owner of the boutique, Faiz, had appointed you as a consultant in developing a just-in-time (JIT) inventory system. He plans to evaluate the system after one year. You must bear in mind that the inventory is the most vital asset to the clothing store since it may influence in measuring growth or reduction, managing costs, or improving the customer shopping experience. You had conducted a research and found that there is a significant amount of shrinkage, and there is a high cost related to inventory storage facilities. Research indicates that inventories use almost half of the company’s cash flow. Finding also confirms that majority of the company’s employees are trained to do only one job whereby significant changes will result in the loss of union employees' jobs. Your research also shows that company should continue to produce the major production item to have a strong sales growth. You are required to: Write a suggestion report using above information and other relevant points concerning the development of JIT inventory system. Should the firm use the JIT inventory system? Relate your discussion with the performance measures use to assess the effectiveness of the system, cost associated with inventory, the important of controlling turnover and the impact of inventory management on profitability. Compare and contrast your decision with other inventory systems. Please support your arguments with relevant and valid sources from academic journal articles.Explanation / Answer
JIT is the best form of inventory storage. JIT stands for just in time and it means that the inventory should be ordered only when required. The excess inventory should be scrapped or returned. It aims at reducing flow times within production and response time from suppliers and to customers. The major features of JIT are
Reduced setup time. Cutting setup time allows the company to reduce or eliminate inventory for "changeover" time. The tool used here is SMED (single-minute exchange of dies).
The flow of goods from warehouse to shelves improves. Small or individual piece lot sizes reduce lot delay inventories, which simplifies inventory flow and its management.
Employees with multiple skills are used more efficiently. Having employees trained to work on different parts of the process allows companies to move workers where they are needed.
Production scheduling and work hour consistency synchronized with demand. If there is no demand for a product at the time, it is not made. This saves the company money, either by not having to pay workers overtime or by having them focus on other work or participate in training.
Increased emphasis on supplier relationships. A company without inventory does not want a supply system problem that creates a part shortage. This makes supplier relationships extremely important.
Supplies come in at regular intervals throughout the production day. Supply is synchronized with production demand and the optimal amount of inventory is on hand at any time. When parts move directly from the truck to the point of assembly, the need for storage facilities is reduced.
Minimizes storage space needed.
Smaller chance of inventory breaking/expiring.
There are various methods to assess the performance of inventory. They are as below:
Average inventory = (Beginning inventory+ Ending inventory)/2
The JIT reduces the working capital required and increases free cash flow.
Cash conversion cycle is defined as
No of days of sales pending+ No of days of inventory pending- no of days of payables
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