A company has significant cash invested in its finished goods inventories. What action can this company take to significantly reduce its inventory investment while maintaining its customer service levels?
A.
Begin production after receipt of customer orders
B.
Move the customer decoupling point from finished goods to components
C.
Increase component assembly lead times
D.
Plan key component material with preferred suppliers
Moving the customer decoupling point (the point where demand variability is buffered) from finished goods to components can significantly reduce inventory investment. By doing this, the company can manufacture and assemble products based on actual customer orders rather than forecasted demand, thereby reducing the amount of finished goods inventory held. This approach, often referred to as an assemble-to-order (ATO) strategy, allows the company to maintain high customer service levels by quickly assembling products from components when orders are received, rather than holding large quantities of finished goods.
References:
Vollmann, T.E., Berry, W.L., Whybark, D.C., & Jacobs, F.R. (2005). Manufacturing Planning and Control for Supply Chain Management. McGraw-Hill.
Ptak, C.A., & Smith, C. (2011). Orlicky's Material Requirements Planning. McGraw-Hill Education.
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