Introduction 

Supply chain management refers to the flow of products and services and it involves the storage and movement of raw materials. For the study, a well-known organisation, DTKs has been selected. In the study, the CEO has to outline DTK’s Kidzone and other companies, DTK Kidzone needs to improve the turnover and the relationship among the costs and inventory turnover, DTKs CEOs should understand the move on the effect on the inventory cost and performance of supply chain and the inventory’s turnover needs to be identified. 

Question –

BSOM023 KPIs Assessment Sample

Overview of essay

The essay gives an overview of the supply chain management and effective distribution channel that the organisation. It is done to increase efficiency and effectiveness for the optimum supply of raw materials and finished goods in the market. The essay provides calculations and measurements of inventory turnover of the organisation for a specific period of time and determines the average storage period for the inventories. The study provides a detailed analysis of the supply chain management that the organisation can follow to reduce storage and selling costs and increase productivity. It also measures the optimum reorder level and reorders period to reduce storage costs and to enhance profitability for the selling of inventories.  

Comparison of DTK s Kidzone to other organisations of the industry

The organisation manufactures clothing for the purpose of children and it is developing in a rapid manner. The manufacturing operations got moved to China when distribution centres have been sufficiently developed for moving to other markets.  All of these changes are made in order to fulfil the target of the improvement on the costs of stock holding and it can be requested on the inventory costs. DTKs Kidzone has moved to China and Eastern Europe to expand the market rapidly. The clothing organisation of the consumer sector need to be compared with some popular companies named Tencent and Huawei. The Chinese consumer sector can look extremely different from today’s generation that happened 5 years ago. The retail environment of online and offline need to be shifted and the customers can become savvier of omnichannel shoppers and local customer packed products (Alvarez, 2016, p.44). It faces tough competition from these two Chinese organisations and the retailer needs to look beyond big brands for meeting the expectations and for nurturing strong relationships. These two Shmueli et al. (2017, p.45) shed light on the fact that Chinese companies can view consumers for determining the business roles for each and every retailer. The following table highlights the different scenarios of the Chinese market that is helpful for the other companies to establish a business in the Chinese market:

Committing to collaboration	The retailers have become much more open to collaboration beyond contract terms
Upgrading skills of negotiation	The retailers have to be identified and they can become savvier negotiators.
Supercharging insights	Retail companies can take complete advantage of information with the help of right partners.

Outlining ways by which DTKs Kidzone can improve inventory turnover 

DTK’s inventory turnover refers to the measurement of various numbers so that inventory can convert to sales. The organisation’s formula needs to be aligned with product costs and products, so that inventory’s investment can be divided significantly. According to Andreou et al. (2016, 220), better prices can be developed for the products to increase demand in an effective manner. Focus should be provided to purchase products that can be sold consistently and the same investment can be provided for keeping average investment. DTKs Kidzone can take the relationship between the proper system of organisational performance and inventory management for well-known organisations. It can be understood that Chinese companies can take advantage of cost-effective techniques for improving the companies. 

The inventory and stock turnover ratio become equal to cost products at the time of proper time frame and average inventory need to be divided (Foss and Saebi, 2017, p.220). The turnover implies weak sales and inventory can be accessed. The organisation’s high ratio implies large discounts and strong sales and the organisation’s speed can sell inventory for measuring the performance of the business. Gallo et al. (2018, p.905) commented that inventory turnover can be calculated as per the sales by stock holding costs. It will also help DTKs Kidzone to assess its competitive advantage with other companies in the Chinese market.

Relationship between inventory turnover and cost for inventory holdings

The inventory turnover indicates the total amount of inventory purchased and sold during a particular financial year. In the context of this, the inventory turnover ratio is 6.05:1, which means net expenditures of sales of goods is 1 time of average work in progress and finished products for the organisation. Inventory turnover of an organisation highlights the rate of finished goods sold for a specific period of time. The comparison between rates of inventory turnover and costs of storage reflects an inverse relationship as the higher the rates of inventory turnover the lower will be the cost of storage.

The average duration of storage of stock in the warehouse is 60 days for the organisation, which means that the goods are sold and relocated within 60 days period of a particular financial year. Effective determination of inventory turnover is necessary to evaluate and analyse the costs and expenditures of storage of goods in a certain periods of time. Storage costs and important to identify the cost of sales of the products for the organisation and examines the total number of days the stocks will remain in the storage or warehouse of the organisation. As opined by Andreou et al. (2016, p. 220) the measurement of inventory turnover and period of time for storage is vital to allocate the inventory reorder level and stock reorder quantity. As stated by Touboulic and Walker (2015, p. 18) the stock reorder quantity means the amount of inventory to be ordered at the optimum level or minimum level to reduce the storage costs and increase productivity in the storage facilities of the organisation. This also helps to identify the minimum stock reorder levels and maximum stock reorder levels to analyse the optimum level and quantity of stocks to be reordered to gain efficiency and for reduction of storage costs.                 

Understanding the effect of inventory holding costs on moving to the Chinese market 

The impact on inventory holding costs and supply chain performance need to be determined how profit can be created on the inventory. As per the view of Holland and Matthews (2018), the business cost can be incurred over certain time period and inventory need to be stored. The four components of inventory are capital costs, storage space, and inventory cost of service and risk costs of inventory. Thus, it can be analysed that DTKs Kidzone, on covering the prior-discussed areas of inventory will be able to improve their turnover and emerge as a successful business in Chinese market.

The following table highlights two areas that can be covered by DTKs Kidzone to improve to sustain success in Chinese market:

Components of inventory costs	Storage space, capital costs, inventory costs and risk costs
Components of supply chain performance	Communication, demand management, communication, integration and collaboration

Discussing issues of inventory turnover and supply chain performance indicators

Issue of inventory turnover 

The business organisations can sell products for attending proper level for inventory turnover and it can measure products with the help of business. Inventory turnover of the clothing organisation can have a significant impact on the sales of the organisation (Marques, 2018, p.820). The organisation, merchants of the organisation can elect various types of services and products for carrying out inventory and products with the help of business operation. DTKs Kidzone can resort to selling of the merchandise for reducing profits and prices. 

Lost sales:

Panwar et al. (2017, p.598) shed light on the fact that if the organisation’s inventory turns over quickly, it can affect sales significantly. Merchants can limit various products for carrying out inventory backlog and products moving with the help of operation. 

High expenses:

Merchants can purchase smaller quantities for keeping inventory turnover for incur great costs. DTKs Kidzone can opt for the options of discounts and deals that can be available for purchasing products in bulk. 

Obsolete business:

In the operations, inventory turnover remains low and merchants can run the risk of staying in the merchandise and it can become unstable because of obsoleteness. It can be an issue in the industries where the tastes of consumers can change rapidly and technology can be evolved (Touboulic and Walker, 2015, p.18). DTKs Kidzone can resort to the selling of merchandise at reduced prices and profits. 

Indicators of supply chain management 

Flexibility can be increased and it can concentrate on low stock levels and it can be a reality of various production organisations. If KPIs and business are defined, it can develop an overview of supply chain management and supply chain performance can be improved. 

Calculations for inventory turnover and the average period of storage

Inventory turnover ratio = Cost of goods sold/average inventory = cost of goods sold during the financial year/ (work in progress + finished goods)/2

Production material costs = 1360000

Work in progress = 3250000

Finished goods = 5010000

The total cost of goods sold = 25 Million

Average inventory turnover = 3.1

Inventory turnover ratio = 25 Million/3.1 = 8.06:1

Inventory turnover ratio = 25 Million/ (3250000 + 5010000)/2

= 25 Million / 4130000

= 25000000/4130000

= 6.05:1

Average period for storage = number of days per annum/inventory turnover ratio 

= 360 days/6.05

= 60 days  

Utilisation of storage space:

Space utilisation of storage can help all of the managers evaluate if they can change size and layout of storage area and obsolete products should be identified and removed. This formula should be determined if the organisation’s material flow can be increased or decreased. Some of the studies can suggest that the capacity of warehouse can be optimal as it allows warehouse managers for responding to the shifts and demands. If order fill’s percentage can be evaluated effectively, it helps forecast sales amount that can be met. This is a potential recommendatory strategy for DTKs Kidzone.

Globalisation:

The organisation’s globalisation represents various types of critical chain management issues of organisations and enterprises. At first, costs of the organisation need to be reduced across the supply chain, lower labour costs and raw materials. For many of the organisations, the production can involve single country; however, several countries can contribute to products various aspects (Vardon 2017 p,215). Globalisation has changed the production distribution, textile, footwear and clothing industries has changed significantly in the last twenty five years those results in sizeable losses in North America and Europe. The organisation, DTKs suggests that globalisation has led to net gain of employment of worldwide and informal sector. 

Quality and compliance:

Apart from enhancing consumer behaviour, the social networking sites highlight the significance of high quality services and products (Xiao and North, 2018, p.30). As per e-Marketer’s research, comments, feedback and comments need to be identified by social networking sites and it enhances the recalls of products. 

Conclusion 

This assignment highlights the issues in inventory and supply chain management of DTKs kid zone as they tend to extend their business of clothing to the markets of China and East Europe. The above-discussed section highlights the different factors and issues of inventory costs that can impose an effect on the organisation on their penetration into another market. The impacts are discussed along with several recommendations. It focuses on the dynamics of the external market that can help in identifying the potential threats underpinning the market scenario. According DTKs Kidzone can modify its strategies and sustain itself in the new emerging market.

Reference list 

Books

Alvarez, J.L. ed., (2016). The diffusion and consumption of business knowledge. London: Springer.

Shmueli, G., Bruce, P.C., Yahav, I., Patel, N.R. and Lichtendahl Jr, K.C., (2017). Data Mining for Business Analytics: Concepts, Techniques, and Applications in R. Hoboken: John Wiley & Sons.

Journals

Andreou, P.C., Louca, C. and Panayides, P.M., (2016). The impact of vertical integration on inventory turnover and operating performance. International Journal of Logistics Research and Applications, 19(3), pp.218-238.

Foss, N.J. and Saebi, T., (2017). Fifteen years of research on business model innovation: How far have we come, and where should we go?. Journal of Management, 43(1), pp.200-227.

Gallo, P.J., Antolin-Lopez, R. and Montiel, I., (2018). Associative Sustainable Business Models: Cases in the bean-to-bar chocolate industry. Journal of Cleaner Production, 174(1), pp.905-916.

Holland, D.A. and Matthews, B.A., (2018). Accounting to cash flow return on investment. Beyond Earnings: Applying the HOLT CFROI® and Economic Profit Framework, 2(4), pp.57-110.

Kesavan, S., Kushwaha, T. and Gaur, V., (2016). Do High and Low Inventory Turnover Retailers Respond Differently to Demand Shocks?. Manufacturing & Service Operations Management, 18(2), pp.198-215.

Manning, S., Larsen, M.M. and Kannothra, C.G., (2018). Global Sourcing of Business Processes: History, Effects, and Future Trends. The New Oxford Handbook of Economic Geography, 5(3), pp.407-420.

Marques, R.P.F., (2018). Continuous Assurance and the Use of Technology for Business Compliance. In Encyclopedia of Information Science and Technology, Fourth Edition, 2(1), pp. 820-830.

Mullineux, A.W., Akeysekera, R. and Patton, D., Co-production in business training in microfinance institutions.

Panwar, R., Nybakk, E., Hansen, E. and Pinkse, J., (2017). Does the business case matter? The effect of a perceived business case on small firms’ social engagement. Journal of Business Ethics, 144(3), pp.597-608.

Touboulic, A. and Walker, H., (2015). Theories in sustainable supply chain management: a structured literature review. International Journal of Physical Distribution & Logistics Management, 45(1/2), pp.16-42.

Vardon, M., Birt, J. and Ingram, J.C., (2017). Business and National Accounting for Natural Capital–Toward Improved Understanding and Alignment. Better Policy through Natural Capital Accounting: Stocktaking and Ways Forward, 1(3), pp.215.

Wang, G., Gunasekaran, A., Ngai, E.W. and Papadopoulos, T., (2016). Big data analytics in logistics and supply chain management: Certain investigations for research and applications. International Journal of Production Economics, 176(2), pp.98-110.

Xiao, L. and North, D., (2018). The role of Technological Business Incubators in supporting business innovation in China: a case of regional adaptability?. Entrepreneurship & Regional Development, 30(2), pp.29-57.

Website

Northampton.ac.uk (2017). Skillshub.northampton.ac.uk Available at: http://skillshub.northampton.ac.uk