Inventory Turnover Ratio - Assignment


Added on  2019-09-30

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Question 1 – In what ways can inventory turnover provide important insights about anorganization's competitiveness and efficiency?Answer 1 – The inventory turnover ratio indicates the number of times a firm is able to turn itsinventory over. It can be computed by taking the ratio of the cost of goods sold for a specificperiod and the mean inventory for the same period as follows. Cost of good soldInventory turnoverAverage inventoryIf there is a high inventory in the firm, then there will be a greater risk of obsolescence and thespace that would have been used for other purposes will be consumed. This is a clear indicator ofinefficiency. On the other hand, if there is less inventory in a firm, then it is considered as ameasure of efficiency as the firm is able to utilize more space for more resources.Generally, an organization can compare its turnover figures to those of direct competitor or otherorganizations with “desirable” turnover ratios. With respect to efficiency, low turnover showsthat a company is taking longer to sell its inventory, possibly for the reason that a productobsolescence or pricing problems. High turnover may indicate a low level of inventories, whichcan intensify the change or product stock outs. It also offers brilliant examples of trade-offscomprising multiple organizational function such as finance, logistics, and marketing. Question 2 - You are to choose an article related to one or more of the topics this week andcreate an initial post. Be sure to have a detailed assessment of your article and explain how itrelates to inventory management.(Attached is some lesson from the week. Post the link of thearticle chosen. Word count should be between 150-200 words)Answer 2 – The article chosen is “I.B.M. Fails to Meet Demand on ThinkPad”The link of the article is given below:https://www.nytimes.com/1995/03/07/business/ibm-fails-to-meet-demand-on-thinkpad.htmlThis article states that in the fourth quarter IBM tripped severely as it was not able to meet itsholiday demand of portable computers, that is, ThinkPad. The Butterfly shortage was the thirdtime recently that the company was not able to meet the demand for the new product. Theproblem was different this time as there were challenges faced in the past due to the shortage ofthe key components. However, this time it was that IBM disclosed features of the product tospecific consumers and resellers.With ThinkPad, IBM made an attempt to solve 2 distressing technical problems that is terriblythe small keyboards and screens. Prices for the new ThinkPad, which uses the older Intel 486chip rather than the faster Pentium, range from $3,800 to $5,600. As there is less inventory ofThinkPad, so it is considered as a measure of efficiency as the firm is able to utilize more spacefor more resources. This implies that IBM is more efficient. Inventory managementrefers to

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