Inventory II

Welcome! You are encouraged to register with the site and login (for free). When you register, you support the site and your question history is saved.

     For an online retailer, inventory represents a major source of cost. Every item of inventory represents an item that has not been sold and which therefore represents unrealized gains. Moreover, the greater the inventory a retailer must hold the anticipation of filling customer orders, the greater the amount of money it must have invested in something that cannot be used for other purposes. Two tenets of inventory management are to turn over inventory as quickly as possible and to hold the minimum amount of inventory necessary to fulfill tomorrow's orders efficiently. Those two challenges are related. If lower levels of inventory are needed, then less inventory will be on hand and it will be turned over more quickly. In competing with another online retailer, however, a company will be inclined to hold inventory of as many items as exist. If a particular type of item is not in stock at one retailer, a customer will turn to a competing retailer. Holding all of the possible stock items in stock adds to inventory cost. A solution to this issue has been previously for a company to have one central, monster-sized warehouse. Centralizing inventory allows a company to hold the widest possible range of items at the lowest necessary levels. But since customers also value speed of delivery time, the "monster warehouse model" has a flaw in that it involves shipping from a location which may not be as close to a customer's location as otherwise and which therefore would be vulnerable to a competitor who can deliver faster.
     These considerations highlight the importance of information about consumer demand. At the basic level, knowing what items sell helps brick-and-mortar retailers determine what items to stock. In competitive online retail, companies with good data can stock minimum sufficient inventory levels. Even more significant, a national retailer that can forecast demand for specific items by region can move from the monster warehouse model to a system of regional warehouses, decreasing shipping time without increasing inventory costs.

The passage suggests that which of the following is true of a centralized warehouse model?

Review: Inventory II


Explanation 

This question asks about the centralized model, which is the "monster" warehouse model. In this question, again, "suggests" could be "directly states" or "strongly implies." What's true of the warehouse model? Choice (A) encourages us to consider how much opinion is in the passage, something we probably should have considered earlier. The passage is fairly low on the opinion; a bit of the author's passion edges in when he discusses the importance of information, but otherwise the passage is largely factual. The author is not decisive in calling one inventory model better than another. If and once you are convinced of this, answer choices (A), (C), and (D) are out as expressing too strong a judgment. We have reason to believe that the author might actually prefer the regional model discussed at the end of the passage under certain conditions (with superior information), but even on that he is not decisive. Next, choice (B) is a distortion of the truth; it's close to what the passage says, but (B) says at the highest necessary levels, not the lowest possible levels.

The correct answer is (E).


If you believe you have found an error in this question or explanation, please contact us and include the question title or URL in your message.
Continue »