Question

This question is very relevant to what is happening in our communities right now. (Covid-19) People are panic buying and hoarding retail essentials. Think about panic buying and hoarding practices. Discuss how it can affect retail inventory management. Discuss how hoarding can affect a) Re-order point, b) Safety Stock and c) Lead times. Based on your understanding of inventory management principles, what would you recommend for both retail stores and customers?

Answer 1

The present day situation due to the corona pandemic has changed the inventory management principles also.

Panic buying and stocking are impacting the whole situation.

A) Re order point (ROP) -

The minimum amount of an inventory that a company keeps before ordering it again.

So, in present situation it completely depends which industry you are working in.

If you are in E-Commerce or pharmaceutical or grocery business you must increase the ROP to a substantial level because people will certainly purchase more than their requirement.

If you are in luxury goods business you can certainly decrease the ROP as demand will be almost zero.

2. Safety Stock -

Again the same logic applies here.

If you are into basic necessities you would keep the safety stock up.

If you are into luxury goods you can reduce the safety stock.

One thing to keep in mind is lead time. Due to the lockdown transportation becomes really tough and takes a lot of time. So you need to increase the safety stock.

3. Lead Times

Lead times will increase in any case doesn't matter what product it is and whether there is demand or not.

For retail stores -

Increase the safety stock of basic necessities and reduce that of luxury goods or not so daily consuming goods. Keep in ming that lead times will increase significantly.

For customers -

You need to stock for at least a week as the retail stores won't have much safety stock.

Also there are people who cannot afford to do stocking hence they will keep purchasung everyday. However, that much stocks must not be present at the store.