Case Study on DTKs Kidzone for Inventory Turnover-myassignmenthelp

Question: Discuss about theCase Study on DTKs Kidzone for Inventory Turnover. Answer: Through ratio analysis DTKs Kidzone is compared with other companies in the industry. Inventory turnover compares how rapidly a company is selling its inventory in comparison to industry average (Aldivitto and Rahman 2016). In order to analyse the performance of the cpmpany in comparison to other related companies, inventory turnover ratio for the company is calculated below: Sales = $25 million Inventory = WIP + Finished goods = 3250000 + 5010000 = 8260000/2 = 4130000 is the average inventory cost Inventory turnover ratio = total cost of goods sold/ average inventory cost = 25000000/ 4130000 = 6.05 Inventory turnover of the company is observed to be 6.05 in comparison to industry average of inventory turnover that is 3.1. As inventory turnover ratio analyses number of times inventory of a company is turned over all through the year (Azzi et al. 2014). A high inventory turnover is deemed preferable as this indicates a companys capability to control its merchandise efficiently to attain high profits. It is gathered that DTKs Kidzone has high inventory turnover ratio than industry average which indicates that the company is using its inventory in most efficient manner to attain increased profit (Diabat 2014). It also indicates that ye company is highly efficient in selling its inventory over a period of time. From the analysis of DTKs Kid zone Companys performance in comparison to other companies in the industry through taking into account its inventory turnover ratio, several measures can be taken through which it can improve this ratio those are explained under: Increasing demand for DTKs Kidzone Companys products through working with marketing team (Feng et al. 2014). Setting better total price for products in order to increase demand that in turn increases sales as well as inventory turnover Distributions should be consulted in order to attain better price for the products or materials purchased by the company that can decrease high inventory investment Decreasing the amount of inventory acquired by the company that is purchased by the company at one time (Fiestras-Janeiro et al. 2015). Focussing on attaining advanced orders that can facilitate the company in decreasing unnecessary inventory along with enhancing inventory turnover ratio. Implementing optimum purchase strategy through ordering low quantity instated of high quantity along with replenishing stock once major quantity of products are sold can enhance inventory turnover ratio. In order to improve its inventory turnover ratio, DTKs Kidzone Company must realise the relationship between inventory turnover and stock holding costs (Folinas and Shen 2014). Stock holding costs includes costs associated with storage space such as warehouse depreciation along with costs associated with insurance, security, depreciation, theft, obsolescence, cost of storage space, products damaged or utility costs, spoilage and forgone interest based on working capital associated with inventory. Carrying costs are directly related with inventory management that involves certain hidden costs such as cost of acquitting products, handling, and housing along with depreciation. For better inventory management, holding costs associated with the inventory must also be taken into consideration (Folinas and Shen 2014). Holding costs are directly associated with storing inventory that is unsold and such costs are one aspect of overall inventory costs with shortage and ordering costs. In case DTKs Kidzone Company moves to China, it might impact inventory holding costs. This is for the reason that moving inventory from one place to another incurs high costs. The company has a situated warehouse in UK and the company is trying to shift its store location in China for its increased number of consumers in the region (Huang 2014). Such situation requires shifting its inventory from UK to China in order to sell its target consumer in the region. In addition, clothing designers and manufacturers might consider offloading such items through selling their unsalable wares through implementing an outlet strategy. Inventory holding costs might increase because of shift from one place to another (Juang and Rane 2016). This is for the reason that the company might experience losses due to improper damages or set up that can result in issues related with production quality. Shifting and installing equipment along with relocating and organizing inventory within a new warehouse mi ght pose considerable challenges. Considering the same it can be gathered that there can be difficulties in inventory management as an inadequate system for tracking the inventory movement might lead to increased costs, decreased fill rates along with product losses (Kim 2015). Before shifting the inventory DTKs Kid zone Company must make sure that appropriate inventory is build up for addressing lost sales in new country because of far inventory management. However, there are other supply chain key performance indicators (KPIs) which might facilitate the company in attaining increased success. These KPIs are explained under: Utilization of storage space: This refers to average amount of storage, warehouse or capacity utilized over a specific duration. This can facilitate the CEO of DTKs Kid zone Company in evaluating whether they must alter the structure and size of storage area along with recognizing obsolete products those must be decreased (Kumar and Prajapati 2015). Order fill rate: This is explained as a percentage of orders which might be filled relied on hand inventory. Such evaluation might facilitate in determining inventory balance along with facilitating to forecast an amount of sales that can be addressed. On time delivery and shipments based on clothing business of DTKs Kidzone, it is obvious that on time delivery must be ensured to consumers so that supply chain operates smoothly with high satisfaction (Lee, Zhou and Hsu 2015). Effective order metric serves as high level measure of performance that is developed through combination of performance markers. This serves as most important KPI for better management of supply chain of DTKs Kid zone in China. This order metric will make it possible in determining certain factors that has worked together successfully if the shipment is delivered to the appropriate place at appropriate time and condition to the desired consumers (Odongo and Nag 2016). From analysis of the case study of DTKs Kidzone, certain issue associated with inventory turnover is recognized along with evaluation of two other key performance indicators that can explain how such move might impact the company in these measures of key supply chain. As inventory turnover level of the company is observed to be high in comparison to the industry average, it can be stated that increased inventory turnover indicates that the company is struggling to decrease its negative impact on sales (Ryu 2017). If inventory turnover happens quite rapidly, it might have an adverse impact on the companys sale. In such case, merchants might consider limiting variety of products they carry for preventing backlog of inventory and keeping the goods moving all across the operation. While DTKs Kidzone might consider quick selling of stocks they have in their hand, they might face difficulty in keeping their shelves full or might not provide a broad selection to address consumer needs (Sato et al. 2014). Moreover, high inventory turnover of DTKs Kidzone indicates higher expenses experienced by the company. As, the company purchased in smaller quantities for maintaining high inventory turnover, it typically experienced increased costs associated with inventory management. The company was also not able to attain special deals or volume discounts that can be available to other companies in the industry those prefer purchasing in bulk (Selvarajah and Zhang 2014). High inventory turnover of DTKs Kidzone has increased the risk of experiencing high transportation costs for the reason that distributors and manufacturers often charge increased shipping prices for smaller orders (Selvarajah and Zhang 2014). In certain scenario, the company might require resorting to highly expensive express delivery techniques that can help in preventing stock-out-situations. The company might require placing orders quite frequently that can result in increased processing expenses (Selvarajah and Zhang 2014). Along with the advantages of high inventory turnover that is attained by the company in indicating its strong sales performance, it also indicates certain misleading results too. It can be gathered that high inventory turnover ratio might be due to the reason that the company is purchasing too less inventory in order to keep up with demands of the consumer. Purchasing lesser inventory amounts specifically indicates that the company pays increased price points (Sato et al. 2014). This increases cost of goods sold that makes for an increased inventory turnover ratio. Along with observing such ratio, the company requires to review its inventory purchasing practices. Two major key performance indicators that can ensure effective supply chain management of DTKs Kidzone are explained under: Total delivered cost along with better consumer service: This is among the two enterprises level KPIs that facilitates in determining total profitability of the organization (Fiestras-Janeiro et al. 2015). Factored within such elevated level metric includes operating costs, supply variability, demand variability and inventory. One among the ways for supporting overall delivered cost measurements remain with a complementary metric over cycle time. This can also facilitate the company in measuring the overall amount of time it takes for a particular item in passing through the supply chain. Moreover, the consumer service based key performance indicator that is supervised at an organizing level and this includes supply variability, demand variability along with performance for planning (Fiestras-Janeiro et al. 2015). This favored approach of measuring consumer service in a wider sense is with certain metrics for on-time full deliveries or fill rate of line item that is the most vita asp ect of consumer service. The major goal of such two enterprise level KPIs is for managing overall delivered cost along with consumer service against a companys strategic goals. Supply and demand variability along with operating costs: Supply variability key performance indicator measure indicates the inventory status against conformance for lead times along with promise dates. These metrics include performance related with the production plan, asset utilization, schedule attainment, capacity use along with product availability within the stocking locations (Fiestras-Janeiro et al. 2015). This KPI also considers demand variability that includes measurements for lead times, inventory, process capability adherence and its improvement process, actual verses forecasted demand and the error associated with forecasting. Moreover, all the departmental costs are mixed within this metric that encompass distribution costs along with costs associated to procurement, warehousing, transportation and manufacturing (Selvarajah and Zhang 2014). In consideration to these, it is likely to measure the cost of goods sold, per unit cost, cost per kilogram that are all useful as major key performance indicators associated with total cost. This KPI will also facilitate the company in the aspects related with total inventory, record accuracy, inventory turns, obsolete inventory, working as well as non-working inventory (Selvarajah and Zhang 2014). These KPIs associated with improving supply chain of the company focuses on measuring performance. References Aldivitto, D. and Rahman, A.F., 2016. The Impact of Working Capital Components Turnover Period Towards Market Value Ratio.Jurnal Ilmiah Mahasiswa FEB,3(2). Azzi, A., Battini, D., Faccio, M., Persona, A. and Sgarbossa, F., 2014. 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