Inventory Management Strategies for Call-Us Plumbing Supply Company Limited

Running head: SUPPLY CHAIN MANAGEMENT
Supply Chain Management
Name of the Student:
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Author Note:

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Answer 1:
Answer 1.1.
The following are the two capacity planning strategies which can be designed for
improving the operational performance of Call-Us Plumbing Supply Company Limited:
Lead strategy:
Lead strategy is used to acquire more raw materials in anticipation of increase in orders
from customers in the future. Companies estimate their future demands and acquire materials
accordingly. Call-Us Plumbing Supply Company Limited can use lead strategy to improve its
present operational capacity. The case study clearly mentions that the expected rise the demand
for finished products to 300000 units per monthly while its present capacity is merely 1000000
units per year which comes to 80000 units approximately. This means the output production
capacity of the company is short by 220000 units. The company according to the lead strategy
can acquire excess stock of finished goods of 220000 units to meet the future estimated demand.
As already pointed out that this high increase in demand of finished goods among customers by
more than 100 percent has already created immense pressure on the present capacity of the
company (Adjemian et al., 2016). The case study also mentions that the demand surge has also
caused immense pressure on the employees of the company involved in manufacturing of the
products which led to high employee turnover. This means that the company cannot put pressure
on its internal production capacity. Thus, it is clear that the company in order to boost its revenue
generation and not put pressure on the existing resources should use lead strategy. It should use
acquire finished products from third party firms to meet the market demand till it is able to
increase its internal productivity to meet the demand of 300000 units.

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Lag strategy:
The second strategy which Call-Us Plumbing Supply Company Limited can utilize
to manage the sudden surge in market demand is lag strategy. Zhironkin et a. (2016)
mentions that lag strategy comes into play when companies reach their maximum
productivity limits. They, in order to bridge the gap between their respective present
productivity limits and the actual numbers of units demanded by their clients, acquire the
excess units from third party manufacturers. For example, the present production capacity of
Call-Us Plumbing Supply Company Limited is around 80000 units of products while the
expected market demand is 300000 units which means there exists a gap of 220000 units.
Haberler (2017) while contrasting lead and lag strategies applications in managing sudden surge
of market demand mentions that lead strategy is more aggressive compared to lag strategy. This
is because as per the lead strategy, Call-Us Plumbing Supply Company Limited would acquire
the entire stock of 300000 units from third party companies. The company in case of lag strategy
would be required to acquire the excess 220000 units.
Answer 1.2.
The two capacity planning strategies which the management of Call-Us Plumbing Supply
Company Limited can apply to meet the issue of higher productivity pressure compared to the
resources available are outsourcing the production of ancillary products and acquiring the
ancillary parts from third party manufacturers of parts. The case study mentions that the
company would require to raise its productivity to 300000 units monthly to meet the future

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increase in demand for products from customers. The case study also mentions the the company
lacks the material and human resources to support this increase in demand for its products in the
market. The case study further mentions that inability to meet this increased demand to lead to
loss of business and revenue generation opportunities. Thus, it is evident in the light of the
discussion that the firm has to adopt a strategy which would enable to meet the increase in
demand of finished products in the market without outing stress on the present resources of the
company. Thus, it is evident in this respect that the first strategy of outsourcing the production
of ancillary parts would enable to Call-Us Plumbing Supply Company to reduce the pressure on
its resources. The company would be acquiring the manufactured ancillary parts from a third
party firm. The manufacturing department would then incorporate these already manufactured
ancillary parts into the finished products. Bernhardt et al. (2016) mention in this respect that
outsourcing of ancillary products enable the firms to diversify the risks of lower productivity and
stress on their present resources to manufacturing contractors. This in fact enables the companies
to reduce their costs of production which decreases their costs of sales. Thus, the result of this
waning cost of production of finished goods is earning high rates of net profit. Thus, it can be
inferred that outsourcing the ancillary parts would enable the plumbing company to reduce the
stress on its existing resources owing to sudden increase in demand in the market.
The second option which Call-Us Plumbing Supply Company Limited can adopt to
reduce stress on its resources would be to acquiring finished goods from third party
manufacturers and selling the same in the market meet the sudden increase in demand.
Vernon (2017) mentions that obtaining finished products manufactured by third party
manufacturer and marketing the same in the market has several advantages for the companies.
First, acquiring finished goods from manufacturers reduces the requirement of the firms to hold

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stock of raw materials and work-in-progress inventory. The firm would only be required to hold
stock of finished goods which the firm would be able to acquire on receiving orders from the
clients. This would require the amount of cash which the firm would be required to lock in
inventory which it turn would enhance the liquidity of Call-Us Plumbing Supply Company
Limited. Benson, Faff and Smith (2015) point out that enhanced liquidity in firms enable them to
recycle the amount invested towards inventory holding faster to earn higher profits. Thus, in this
respect it can be inferred that the second strategy which the company would apply would be
acquiring of finished plumbing products manufactured by third party and market the sell in the
market. This strategy would in fact enable the company to reduce losing of business
opportunities to cater to customers and generate higher revenue as mentioned in the case study.
Answer 1.3.
Call-Us Plumbing Supply Company Limited should implement the lag strategy to
manage the acute productivity challenge it is facing on the face of sudden overshooting of
customer demands compared to its present productivity. The following are the steps which the
company can employ:
1. The company should adopt the policy of extension of internal productivity by installing new
plants.
2. The company should use its present capacity of 150000 units a month to fulfil the demand of
the clients.
3. The company must then acquire the excess of 300000 units from third party suppliers.

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This use of lag strategy would have three benefits to the company. Lin et al. (2017) point
out that use of lag strategy is less expensive compared to the lead strategy, thus enabling
companies using the strategy reduce their expenditures of acquiring stock of finished goods. The
first benefit of the strategy which is evident from the discussion is, that it attracts less
expenditure compared to lead strategy. The second advantage of the lag strategy to the company
would that the company would not become entirely reliant on third part manufacturers to make
goods available to consumers. Thus, in this respect it can be pointed out by using the lag
strategy, Call-Us Plumbing Supply Company Limited would be able to continue its own
production facilities without becoming totally dependent on the third party firms to cater to the
customers (Chen, 2017). The third benefit which Call-Us Plumbing Supply Company Limited
can reap by using the lag strategy would be able to reduce the pressure on its own production
facilities. This would allow the company to bring about advancement in its own production
facility to meet the future market demands. Thus, it is evident that implementation of using the
lag strategy would enable the company meet the increase in the demand for its products in the
market. The company should form a different team which would look into implement the lag
strategy. The team would first see how the available resources of the company can be utilised
before ordering further units.
Answer 1.4.
The following is the model which Call-Us Plumbing Supply Company Limited, the firm
forming the crux of the case study can adopt for achievement of ideal capacity planning strategy: