Question 19 (3 points) Please read the following article and describe what the author perceives to be a potential problem with inventory turnover. Make sure to check the meaning of inventory turnover in note#6. Walmart's Out of Stock Problem: Only Half the Story? Forbes, Paula Rosenblum, April 2014 Walmart has a problem, and in acknowledging it, the company might have taken the first steps to solving it. The problem is framed as involving out of stock merchandise. According to the retail blog RetailWire, the empty shelf problem was first reported by Bloomberg early last year. Fellow Forbes contributor Walter Loeb asked the very pointed and clear question "Why Are Walmart Stores Such A Mess?" last summer in one of his blogs. The company responded with pointed denials in both cases. All that has changed. At a company meeting this month in Orlando, executives reported they were leaving almost $3 billion on the table as a result of out-of-stocks. That's a big number and Bloomberg reports the company plans to add store associates into stores to speed up shelf restocking. At the same time, the company is reportedly trying to cut back on total inventory. For the past three years, inventory has been growing at a faster rate than sales. The root problem is what I call "the tyranny of turn." In simple terms, inventory turnover is not about how much is sold. Instead, it's the velocity of sales as a percentage of average inventory value. There's a more specific mathematical calculation, but we don't need to get into that here. Think of it this way. You walk into a store and you see a pack of gum on the rack in front of you. How many weeks or months was that same pack of gum on the shelf? Ideally, it hasn't been there too long. It's flowing out of the store and replaced with a new pack of gum that was ordered by the merchandise buyer. All this sounds simple and logical, except "turnover" is an aggregated number. That means they're not just looking sales and inventory values for just the one brand of gum, but rather of all the brands of gum in the stores. In fact, in all likelihood, they're looking at gum as part of the overall category "candy" and they have a specific turnover target for that category. For example, if chocolate isn't selling very well, in order to keep turn under control, separate purchase orders won't be created for that gum you really wanted to buy. So, the customer and the retailer are trapped by this law of averages: you've got a foot in a bucket of ice and a foot in a bucket of boiling tar On sarana urwarm hutunrennt von martable And the leamarte nomina aggregated number. That means they're not just looking sales and inventory values for just the one brand of gum, but rather of all the brands of gum in the stores. In fact, in all likelihood, they're looking at gum as part of the overall category "candy" and they have a specific turnover target for that category. For example, if chocolate isn't selling very well, in order to keep turn under control, separate purchase orders won't be created for that gum you really wanted to buy. So, the customer and the retailer are trapped by this law of averages: you've got a foot in a bucket of ice and a foot in a bucket of boiling water. On average, you're warm, but you're not very comfortable. And this is Walmart's problem in a nutshell. Inventory is going up, but so are out-of-stocks. This is a very difficult situation to resolve, especially in a company that carries as many different items as Walmart. In a store full of commodities, it's hard to identify a few items as "hot." The way these types of problems get solved is by altering the way buyers are compensated and, at least for a while, over-ordering on merchandise that is selling quickly. Of course, for gum and other things that Walmart buys in the country it's selling it in, you can balance the scales fairly quickly. But, when most of what you're selling is being made half-way round the 2 world, it takes four weeks to even begin to correct a problem like this. Obviously, the overarching problem won't be solved overnight. It's going to take some time to get it right. On the plus side (and I can't stress this enough), at least the giant has recognized it has a problem. On the minus side, the customer doesn't have time to wait