Statement: A retail company’s inventory manager consistently orders too much stock during seasonal periods, leading to significant markdowns and storage costs. When questioned, the manager says they 'better safe than sorry' and always order the maximum amount to avoid stockouts, even though sales data shows consistent overordering.
What decision-making improvement should be implemented?
Show answer & explanation
Correct answer: B
Explanation
Option 1 (Reduce quantity by 20%): This would be an arbitrary decision. Demand for some products may be truly high, where a 20% reduction could lead to a stock-out.
Option 3 (Hire additional analysts): This would increase the company's expenses, while the main problem (the forecasting method) would remain the same.
Option 4 (Immediately adopt JIT): Implementing a JIT system 'immediately' can be risky, especially during seasonal periods when even a slight disruption in the supply chain can impact overall sales.
Option 2 (Implement a demand forecasting model): This is the most accurate solution. Analysis of historical sales data and market trends will provide the company with accurate information about the demand for each product in each season. This will prevent the accumulation of excess stock and the risk of stock-outs. This will transform the manager's personal guess into a data-driven decision.
Therefore, the correct answer is 'Implement a demand forecasting model based on historical sales data and market trends.'