Inventory III

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     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.

In the context of the passage as a whole, the second paragraph serves primarily to

Review: Inventory III


Explanation

This question asks us something that may not be preloaded in our mind, but which we can determine and articulate before turning to the answer choices, thus navigating with sureness and swiftness. What happens in the second paragraph? The author draws a secondary conclusion--a corollary, you could say--on a tangential topic: information about consumer demand. Also, the author shows that the monster warehouse model is not necessarily best under all circumstances. Let's look for an answer choice that captures one or both of these points. Choice (A) hits on the "corollary" idea. Choices (B) and (C) are out, because there refutations and the evaluation of alternatives don't happen--we don't reach that level of opinion. Choices (D) and (E) are related to part of what we saw in paragraph two, because they hit on the concept that the monster model is not necessarily best, but they both go too far, as the paragraph doesn't prevent "pitfalls" of the monster model, nor are the previous conclusions "undermined." A sense of the level of opinion in the passage is quite useful in this question.

The correct answer is (A).


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