Quantifying the impact of inventory holding cost and reactive capacity on an apparel manufacturers profitability

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This paper was motivated by the operational problems faced by Northco, a school uniform manufacturer in the Northeastern United States. Northco was facing high working capital costs while also incurring high stockout and markdown costs. This paper models the impact of inventory holding cost and reactive capacity on Northco's targeted understocking and overstocking cost and offers a solution methodology for such problems. We quantify the impact of varying inventory carrying costs (and hence, high working capital costs) on stockout costs and the value of additional capacity. Our results illustrate that apparel manufacturers with high working capital costs, and hence high inventory carrying costs, should target higher stockout costs and achieve lower capacity utilization. The results presented have application beyond Northco because high working capital cost is endemic to many supply chains.
Publisher
PRODUCTION OPERATIONS MANAGEMENT SOC
Issue Date
2002
Language
English
Article Type
Article
Keywords

STYLE-GOODS; FORECAST REVISIONS; DEMAND

Citation

PRODUCTION AND OPERATIONS MANAGEMENT, v.11, no.3, pp.358 - 373

ISSN
1059-1478
URI
http://hdl.handle.net/10203/4081
Appears in Collection
MT-Journal Papers(저널논문)
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