The Inventory Risk Classification in the Car Audio Industry

The Inventory Risk Classification in the Car Audio Industry

To almost all industries, the inventory management is important, but risky. This is also true to the industry of the car audio. To decide a good inventory policy formation, it requires people to understand the role of the inventory in the logistic and manufacturing sectors.

The inventory risk of the car stereo industry is well noticed by all parties in the supply chain. This risk depends on the firm’s place in the distribution channel. Different parties are facing their problems. To a car radio company, the inventory commitment is complex and important. The typical measures lie in the three aspects. They are the duration, the depth and the width of commitment.

In the auto radio industry, the manufacturers, the wholesalers and the retailers are the three major parties that are facing the inventory risk of a head unit.

1. The inventory risk of a manufacturer of the car audio. For a manufacturer of the car stereo, the inventory risk is a threat in the long term. In the manufacturing process, the risk is in every single step of the production line, even in the function building process. The car radio manufacturer’s inventory commitment is in every step of the production. For instance, the risk of a head unit involves in the raw material procurement and the parts preparation. In addition, an auto radio manufacturer is always preparing finished goods in the warehouse to cope with the customer demand. In some business cases, the manufacturers have to deliver the inventory to a customer’s designated facility. Such a business practice is actually shifting the risk to the manufacturer of car audio. Usually, compared with a wholesaler and a retailer, a manufacturer only has a relatively narrow product line. However, a manufacturer bears the deep inventory commitment with long duration.

2. The inventory risk of a wholesaler of the car audio. Usually, the role of a car stereo wholesaler in the supply chain is that it buys big quantities from different manufacturers and sells smaller quantities to different retailers. The business achievement or the economic justification of a wholesaler is the ability to offer retailers with varied head unit products from different manufacturers in required quantities. In typical cases of the seasonal products, the car radio wholesaler may have to take a huge inventory ahead of the selling season. This practice will put the wholesaler in a difficult position of increasing the depth and duration of the inventory risk. Another reason increasing the risk is the product line expansion. An auto radio wholesaler is under the challenge to offer various products. This practice increases the width of the risk which almost reaches that of the retailer. In recent years, head unit retailers are shifting the inventory risk back to the wholesalers due to the highly competitive markets.

3. The inventory risk of a car audio retailer. For a car stereo retailer, the business and the inventory management is all about the buying and selling speed of a head unit. To meet the customer’s need, a retailer buys a range of car radio products and put himself under the great pressure of the risk in the marketing process. The risk of a retailer is wide, but not deep. The high rent of the store forces a car audio retailer to focus more on the inventory turnover and the profit of each product.

Facing with the width of the inventory, a retailer takes many methods to cut the inventory risk. The retailers may need the wholesalers and the manufacturers to guarantee a great inventory responsibility, try to shorten the order lead time of a head unit. This practice will increase the inventory risk of a wholesaler and a manufacturer.

The related inventory risk is very important when a company of the car audio involves in more than one level of the distribution sector. If a firm plans to run at all levels of the supply chain, the firm must take the inventory risk at each level into consideration when designing the management plan of the supply chain.