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- QUESTION
PRMM Motors has been a popular engine company in Europe for several years, and it manufactures engines and components that range from engine blocks to gaskets. Its manufacturing plant has been in India for the past 10 years and ships the stock to its warehouse in Wolfsburg, Germany. Recently, the company has decided that it wants to reach the U.S. market because of increasing popularity of racing. It has approached SPI and explained the situation, and the company is looking for advice on the following:
Should it keep 1 warehouse in Germany or build an additional warehouse in the United States?
What type of shipping method should be used, and why?
What are cycle stock and safety stock? Should it have either?
What type of inventory management techniques could the company use?
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Answer
Delivery and Logistics
Warehouses are important as they store the shipment pending distribution. They are also necessary for consolidation, sorting and reverse logistics (De &Franco, 2011). Since the company has only one warehouse in Germany, to allow for ease of access, it will need an additional warehouse in the U.S. to cater to the U.S. market. It is also cheaper than transporting goods from Germany to the U.S. as they are needed. It is not possible to ship directly from India and start distribution without having a place to store the shipment. However, instead of building a warehouse, they can lease first.
Consolidated shipment is where there is a combination of shipments to save cost (Manresa, 2010). Since the company is venturing a new market, it should minimize expenses. Using consolidated shipment saves cost as different shipments are combined ad shipped together
Cycle stock is the portion of inventory that a seller cycles through to satisfy steady demand. It is based on the demand forecast. A business can sell and replenish this stock without using the safety stock. Maintaining the cycle stock as low as possible is the key to inventory management. It saves money on shipping and storage cost. On the other hand, a safety stock is the part of the inventory that covers unexpected surge in demand. It provides a cushion against delayed shipments and excess demand. With accurate forecasts, the company will not rely on safety stock
The company can use Just in Time (JIT) system to avoid unnecessary inventory which costs money regarding warehousing (Bose, 2006). The just In time technique ensures that there is a continuous flow of supply, and only the required amount of products are shipped.
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References
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Bose, D. C. (2006). Inventory management. New Delhi: Prentice Hall of India.
De, T. A. F., & Franco, R. D. (2011). International operations management: Lessons in
global business. Farnham: Gower.
Manresa, M. (2010). How to open & operate a financially successful import export
business: With companion CD-ROM. Ocala, Fla: Atlantic Pub. Group.
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