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 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?
To significantly reduce inventory investment while maintaining customer service levels, the company can move the customer decoupling point from finished goods to components. This strategy involves holding inventory in the form of components rather than finished products, which allows for final assembly or product differentiation to occur only after receiving customer orders. This reduces the need to hold large quantities of finished goods in inventory, thereby lowering inventory investment while still being able to meet customer demand in a timely manner.
Moving the customer decoupling point from finished goods to components is a strategy that can significantly reduce inventory investment while maintaining customer service levels. The customer decoupling point refers to the point in the supply chain where a product is differentiated to meet specific customer requirements. By moving the customer decoupling point from finished goods to components, the company can delay the final assembly of products until customer orders are received. This allows the company to reduce the amount of finished goods inventory it needs to carry, as it can assemble the products based on actual demand.
Please why is D the answer here?
Moving the customer decoupling point closer to the customer and further upstream in the supply chain involves keeping components or subassemblies in inventory until a customer order is received.