Lorie Mae L.

Jagmis Palawan State University

BSA 1-3 Management Science
CHAPTER 4 – Assignment

1. Discuss the importance of keeping a well-maintained, complete, sufficient and low cost
Inventory Management System.
ANSWER:
We are all aware that inventory management is the activity of purchasing, holding, and even selling
stocks or inventories while ensuring that the amount of inventories that are available is right, and if it is
done correctly, a business organization or company can actually save money. In other words, inventory
management is what we do to prevent overstocking or understocking of inventories while making sure
that costumer’s demand can be met.
It is important to keep a well-maintained, complete, sufficient and low cost Inventory Management
System because first of all, money is involved. Money is a highly important issue from a business
perspective, and spending a lot of money without knowing whether or not the inventory will all be sold
is a huge waste. Another thing is that, to make sure the business functions smoothly and effectively, the
proper amount of available inventory must be maintained. A seller runs the risk of not being able to
fulfill orders from customers if they have too little inventory on hand, while having too much inventory
on hand raises expenses and has a negative effect on their finances.
Additionally, keeping a well-maintained, complete, sufficient and low cost Inventory Management
System not only makes sure that the proper products are continuously available for all consumers, but it
also enables a business to predict future inventory needs. Businesses can monitor their inventory in real-
time and determine when a certain product is getting low so that it can be refilled before it sells out.
Businesses can identify underperforming items with the help of an effective inventory management
system, eliminating dead stock and lowering inventory expenditures. It provide accurate demand
forecasts, enabling businesses to minimize inventory levels without jeopardizing delivery times or
product quality.

2. Give advantages and disadvantages for both inventory replenishment by ordering

(Instantaneous) and making the items yourself (Incremental).
ANSWER:
Inventory replenishment focuses on making sure that the business has the perfect amount of
inventory at the perfect time, allowing it to maximize income and profit, reduce expenses, and satisfy
consumers. Inventory replenishment also help avoid stock outs, improve costumer’s satisfaction,
prevents overstocking, and lower the shipping cost. We have two types of inventory replenishment
namely: instantaneous and Incremental. Instantaneous replenishment is an effective approach to boost
productivity and cut waste since it only replenishes raw material stock levels when they are required to
produce completed goods while Incremental replenishment refers to the process of restocking
inventory in small, continuous amounts over time as opposed to a large, one-time restock.
On the other hand, the two types of replenishments provides many benefits. Instantaneous
Replenishment, the ability to do deal with the need for manual product ordering and tracking is one of
its key benefits. Time is saved, and the possibility of mistakes or delays in the supply chain is decreased.
Instantaneous replenishment also guarantees that companies can meet client needs, particularly during
busy times, minimizing lost sales as a result of stockouts. Additionally, it lets companies to manage their
supply chains more effectively and economically, resulting in improved profit margins. When it comes to
Incremental replenishment extra administrative effort required to continuously order and receive tiny
batches of goods is one of the largest disadvantage. A business's overall effectiveness and profitability
may be harmed as a result of increased administrative expenses and delays. Furthermore, firms with
highly changing demand may not be a good fit for incremental replenishment since it may be
challenging to estimate the precise quantity of goods that will need to be ordered at any particular
moment.

Naturally, there are disadvantages whenever there are advantages. Cost is one of the primary
problems with instantaneous replenishing. Businesses have to pay extra for the transport and handling
fees when an item is refilled right away, which pile up and can quickly cut into their profits.
Instantaneous replenishment has another disadvantage of possibly overstocking or understocking
products. When retailers and producers employ this strategy, it's possible that they will overestimate
the demand for the goods and place excessive orders, which can result in overstocking. On the other
side, they can underestimate the product's demand and order too little, which would result in
understocking. Understocking can result in missed sales, while overstocking can result in excess
inventory, which is a waste of resources, both of which can be harmful to the profitability of the
business. Last but not least, instantaneous replenishment may result in a lack of selection on the
market. Retailers are likely to concentrate on selling only the most well-liked products because they
constantly refill. As a result, shoppers might not have the chance to find uncommon and intriguing
products because less well-known or specialized products may never have a chance to reach the stores.
As a result, this may cause customers to become disinterested in the store's offerings, which could
ultimately result in lower sales. The possibility of shortages or stockouts is a serious disadvantage of
incremental replenishment. Because the inventory is refilled at set periods or amounts, it might not take
into account demand variations or spikes. A product may run out of stock if demand for it rises
significantly and the supply is not refilled in time, which could result in lost sales and disgruntled
customers. Incremental replenishment also has a negative effect on the relationships with suppliers. The
company may lose sales, its reputation, and its profitability if a supplier is unable to provide the needed
inventory on time. If the supplier is unable to keep up with the incremental replenishment intervals, the
relationship may become strained as a result of the provider's difficulties satisfying the demands of the
business.