why inventory matters now

Why Inventory Matters Now : Summary and Reaction

Wal-Mart has done an excellent job in inventory management , although the goal of limiting inventory growth to only one half of sales growth is more important than ever , because this will positively affect the company 's return on investment

Wal-Mart has made commendable developments in inventory management , but it was necessary for Wal-Mart to exert greater control on inventory management because of the many other negative factors beyond its control

In July , Merrill Lynch analyst Virginia Genereux downgraded . Wal-Mart from 'buy ' to 'neutral

' According to her , improvements in merchandise store layout , and customer experience can ultimately benefit U .S stores although on the short term there may be undesirable consequences

In the previous five years , Wal-Mart stocks have performed poorly . J .P Morgan analyst Charles Grom predicts continuing poor performance after the low quality second-quarter results from Wal-Mart in August . Even with inventory reductions , Grom sees a strong likelihood of poor growth in the near future

However , Citigroup analyst Deborah Weinswig has a better prognosis concerning Wal-Mart 's aggressive inventory management . For two consecutive quarters , the retailer 's inventory has grown at half or less than half of sales , evidence of the benefits of Wal-Mart 's aggressive inventory limiting initiatives . However , according to Weinswig , Wal-Mart will still face some immediate setbacks on earnings

An interesting point that this article tackles is the almost counter-intuitive fact that limiting inventory is actually beneficial in the long run . The article effectively expresses the fact that inventory management is vital to the success of a retailer , particularly a retailer as massive as Wal-Mart . Wal-Mart is a massive empire that caters to everyone , and thus it should have a large selection of goods However , the more the retailer stocks up , the more cash is bound up in inventory - thus the importance of inventory management

The exposition on the relationship between inventory and sales , while not treated in a very detailed manner , adequately portrays its complexities by explaining the views of three financial analysts . Here we find another interesting aspect of the article is that three different analysts have differing views on the performance of Wal-Mart suggesting the unpredictable and uncertain nature of business and finance

Studying how inventory affects a company 's profitability helps in the fine tuning and decision-making on policies and marketing strategies to actualize a firm 's maximum growth potential . Inventories represent non-liquidated money , so less inventories usually translates to greater sales . This also assures the company of a faster return on investment (ROI . Inventories affect the cash flow of a company the article laid out the fundamentals in a succinct and easy-to-understand manner

The article also shows how inventories serve as one of the important factors that help analysts rate the financial standing of a company . It describes how analysts gauge a company 's prospects , and in this case because of Wal-Mart 's inventory management initiatives , market analysts are predicting that their shares will increase - a good predictor of the company 's future . I...