Question

The following discussion describes a new inventory system used by J. C. Penney39:

39 Gabriel Kahn, "Made to Measure: Invisible Supplier Has Penney’s Shirts All Buttoned Up," Wall Street Journal, September 11, 2003.

In an industry where the goal is rapid turnaround of merchandise, J.C. Penney stores now hold almost no extra inventory of house-brand shirts. Less than a decade ago, Penney would have stored thousands of them in warehouses across the U.S., tying up capital and slowly going out of style.
The entire program is designed and operated by TAL Apparel Ltd., a closely held Hong Kong shirt maker. TAL collects point-of-sale data for Penney’s shirts directly from its stores in North America for analysis through a computer model it designed. The Hong Kong company then decides how many shirts to make, and in what styles, colors, and sizes. The manufacturer sends the shirts directly to each Penney store, bypassing the retailer’s warehouses and corporate decision makers.

Discuss how this case illustrates the concept of the opportunity cost of capital.

How does this innovation also help in demand management?

Answer 1

J. C. Penney's inventory system aids demand management by using real-time sales data for production decisions, increasing efficiency and reducing inventory risk.

Step-by-step explanation:

The new inventory system used by J. C. Penney, which is designed and operated by TAL Apparel Ltd., helps in demand management by allowing more accurate production and distribution based on real-time sales data. This system bypasses traditional warehousing and corporate decision-making, which can create delays and result in overstock or understock scenarios. By directly analyzing point-of-sale data, TAL can adjust production dynamically to meet the actual consumer demand. This results in a more efficient supply chain, reducing the risk of excess inventory and enabling Penney to respond quickly to changing consumer preferences.

Such systems are at the forefront of modern inventory management, utilizing advances in technology and data analytics to create a more responsive and streamlined approach to retail sales. This integrates concepts from Mail-Order Houses and Marketing where consumer demand and preferences are pivotal. The system embodies an evolution in efficiency and predictability, showcasing a shift from past practices where outsourced garment production often led to issues such as sweatshop practices and overproduction. Additionally, it reflects the trend of global assembly lines and the interconnectivity of design, production, and sales in the global market.