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Research Details

Kaffee Kostuum: A Dilemma in Retail Financials

Abstract

Kaffee Kostuum is a short case that introduces inventory and supply chain management and its financial impact. The case provides a simple context for examining basic inventory performance measures to improve operational, as well as financial, performance. The case has three parts: (1) analyzing reordering decisions, leading to the economic order quantity (EOQ) model and corresponding cycle stock levels; (2) investigating the effect of demand uncertainty, leading to the concept of safety stock; (3) and analyzing the impact of various supply-chain redesign initiatives, such as product rationalization, reshoring, and physical centralization, to reduce inventories.
The case shows how the EOQ model can be applied in a multiproduct environment, and it relates safety stocks to forecast accuracy. Indeed, although the classic formula for safety stock setting uses standard deviation in demand, it is, in essence, the forecast error that drives the need for safety stocks.
The case also facilitates the understanding of the trade-offs inherent in defining an operations and supply chain strategy. It shows that it is difficult to compete in all dimensions simultaneously (here: variety, price, and responsiveness) while making a profit. One might have to choose which dimension to give up in favor of more focus and improved financial performance.

Type

Case

Author(s)

Jan A. Van Mieghem, Robert Boute

Date Published

11/04/2020

Discipline

Operations

Key Concepts

inventory management, supply chain finance, supply chain management, working capital management

Citations

Van Mieghem, Jan A., and Robert Boute. Kaffee Kostuum: A Dilemma in Retail Financials. Case 5-120-003 (KE1175).

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