Logistics paper
Question one
Service level ensures the organisations have enough stock for a specific period. It is a point where the sales managers get an alert that more stock is needed. Uncertainty is a state of being unpredictable. Safety stock entails an extra amount of the stock that is purchased to cater for uncertainties such as stock out (Dubelaar, Chow & Larson, 2001). An order quantity refers to the number of products a supplier is directed to bring to the company. The four elements relate to each other. For instance, organisations increase the safety stock when the service levels go below the expected point. This helps a firm to cope effectively in a competitive environment (Benton, 1991). When safety stocks and order quantity are well done, the service level goes up. Research also shows that uncertainty does not have any effect on the levels of inventory. The amount of stock to be ordered highly depends on where the service level has reached. There is also an element of uncertainty, primarily when the amount of stock supplied is higher than the customers’ demand. To ensure the right trade-offs, there is a need for proper communication between the customer, organisation, and supplier (Dubelaar et al., 2001).
Question two
It is considered unhealthy to hold an inventory for an organisation. This is just like keeping capital in a place where no interest is earned. Some of the inventory, when held for a long time, can become obsolete. Wholesalers, retailers, and manufacturers always have a more significant impact on the distribution channel. To escape high costs associated withholding the inventory, many businesses will develop a culture of pushing back the inventory (Berling, 2008). Don't use plagiarised sources.Get your custom essay just from $11/page
Question three
The probability of a stock-out refers to the chances of the available inventory being insufficient to meet a particular demand. It is impossible to predict the units below the order quantity. The magnitude of a stock-out is highly determined by what the client demands, and the firm relies only on the inventory available. If the order quantity is more, the firm will have less magnitude of the stock-outs since all the units are well measured and predicted (Minner, 2012).
Question four
If the organisations have serious customers, the customer-based inventory management strategies are of much importance. They bring efficiency and are customer-oriented. If the firm has not segmented its potential clients, there is a likelihood of discrimination while using such strategies. Therefore, the formulation of strategy must be in line with the needs of the customers (Gattorna, 1996).
Question five
Reactive logic is termed as a pull system that triggers the supply of an order quantity. The order is further regarded as an existing stock and is placed at a maximum service level. The reactive inventory logic can meet the needs by using the channel of distribution to draw products. Planning inventory logic allows the proper arrangement to be made, having the demand rates in mind. Since planning is done in a good time, meeting the demand for clients is guaranteed.
Additionally, the planning inventory system coordinates various stocks at different levels of supply chain management. The risk associated with the reactive system is that many orders can be supplied without considering the customers’ need. To some extent, this can result in the firm making losses. The planning inventory is deemed to be useful, but if not well-coordinated, can as well fail to consider customers’ taste and preferences (Faye-Petersen, Heller & Joshi, 2007).