Good Forecasting – Forecasting is very essential for budgetary and inventory safety stocks planning. Errors in forecasting may cause shortages and production disruption or overstock that increased the operations cost and reduce profit margin. “Demand for a product is generated through the interaction of a number of factors too complex to describe accurately in a model. Therefore, all forecasts certainly contain some error. In discussing forecast errors, it is convenient to distinguish between sources of error and the measurement of error.” (Chase, Jacobs & Aquilano, 2005, p.524).
Apply Vendor consignment – Through vendor consignment, Lawrence will not be concerned on buffering or creating a large stock inventory but instead plan to use the warehouse of the supplier or arrange an order in a consignment basis. According to Piasecki (2005) that the key benefits to the customer regarding vendor consignment should be obvious; the customers do not have to tie up their capital in inventory. Consignment inventory allows the supplier to provide a higher service level by having the parts immediately available, save expedited freight costs, and ensure the customer does not procure a replacement part from a competitor.
Practice Just in time – This is typically used to minimize stock inventory, thus keep the capital in inventory low. The supplies are planned in way that they arrive few days before they are needed or just in time. This system is very effective if the suppliers are within proximity where the leadtime of transportation is negligible and predictable. According to Gomez-Mejia (2002) that in a JIT system, inventory of the supply are kept at the lowest level possible. Inputs arrive at the organization when, not before, they are needed.
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