Managing Inventory in Unstable Markets

Introduction

The goal of any company is to obtain the highest possible return for their investments. For years, researchers have explored the ways in which markets can be enabled to achieve the greatest and highest profits possible. With the world becoming increasingly globalized, international markets and especially emerging markets, have been proven to offer investors more options to diversify and expand their investments. Middle East markets have been recognized as a region of recent economic growth and stability (Jones, 2003). Academic analysis of the region’s geographic prospects have considered the following countries: Algeria, Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, Turkey, United Arab Emirates and Yemen, as part of the Middle East region (Jones, 2003). Unfortunately, within this region, despite early optimistic view of economic conditions, some countries have experienced political tensions caused by civil uprisings, which has dimmed the market optimism related to these countries (Chau, et al., 2014). While it is a truism that all countries of the world are prone to uncertainties, in some countries uncertainty is rather more marked, causes disruptions in the timely delivery of products, and raises the requirements for business plans that anticipate uncertainty of the market (Handfield & McCormack, 2007). The impact of political uncertainty and the recent turmoil in the Middle east region contributes to financial volatility in the markets of these regions (Chau, et al., 2014). Within the context of business plans, the importance of understanding the role of political uncertainty on inventory management stability are of great significance to investors and market inspectors (Chau, et al., 2014).

Iraqi market

The Middle East is a fast-growing region, due to its abundant supply of resources, and is currently proving to be an attractive destination for electronics and mobile phone businesses, with many brands now being represented in the region’s markets (AlGhamdi, et al., 2011). The prominent example of this study is Iraq’s market. After a long period of political instability, Iraq is now anticipating for rapid reconstruction (Al-Najjar, et al., 2016). After the invasion by the United States and its allies in 2003, Saddam Hussein was removed from the power, and the Iraqi market started attracting foreign and local investors to make significant contribution by investing heavily in its market. The diversity of the cultural, political and economic make Iraq’s market an attractive and profitable (Bradley III, et al., 2010). Which lead International exporting companies to benefit from the current situation and demand in Iraq by entering and developing this growth market early and ahead of others. Despite the security and domestic concerns Iraq's economy has not been immobilized by violence and even small businesses have been able to grow and blossom (Foote, et al., 2004; Bradley III, et al., 2010) Electronics and mobile phone devices are some of the important export goods to Iraq. As mentioned earlier, this essay examines the risks to inventory due to the political turmoil and uncertainty in Iraq, which makes the market status impossible to predict.

In the previous years, more and more electronic and mobile phone companies have internationalized their operations and targeted the middle east and especially Iraqi market (Bradley III, et al., 2010). However, foreign companies’ entry decisions in Iraq are surrounded by so many risks to secure and deliver the stock to the market due to political issues. To achieve efficiency in the control of stock in Iraq market, it is required that businesses adopt inventory control techniques such as economic order quantity, inventory review interval stock order point, and safety stock level (Jones, 2003).

Inventory:

Inventory is a fundamental measure of the strength of supply chain management (Chopra & Meindl, 2016). In brief, the supply chain refers to the upstream and downstream flow of products, services, finances and information and constitutes a network of companies (Chopra & Meindl, 2016). Inventory is considered the capital asset for any supply chain, whether it is a global or domestic firm (Chopra & Sodhi, 2004). Inventory can vary from raw materials to works-in-process and finished goods, as well as maintenance, repair, and operations products (Chopra & Sodhi, 2004). In this essay, focus is on the third type of inventory, which is the ready to be sold products. As part of supply chain, inventory management includes essential aspects such as controlling and overseeing purchases not only from suppliers’ end but also from customers side to maintain storage and control inventory and sales, and order fulfillment. Hence, inventory planning and controlling is crucial to establishing appropriate supply to the market demand. Planning includes the amount of time, effort, money and other resources expended on inventory to ensure the sustainability and resilience of the supply (Partovi & Anandarajan, 2002). Lack of inventory management can lead to a situation where the firm is burdened with obsolete, redundant, or surplus stock which unfortunately requires extra money to manage due to the storing and controlling of the products (Partovi & Anandarajan, 2002). This scenario occurs when demand is highly unpredictable and leads to shortages or surplus in stock and causes stockholding, which can cause more damage, such as, loss and deterioration of stock (Partovi & Anandarajan, 2002).

Inventory management can be approached systematically by obtaining and storing the raw materials and finished products, and inventory management is an essential part of supply chain management (Jones & Riley, 1985). Inventory management contributes to maximising value and reducing risk and uncertainty (Michalski, 2009). Inventory risk varies based on the operation mode of the supply chain, including pre-orders, consignment and combination; the impact of the financial constraints and risks differs accordingly (Lai, et al., 2009). The turbulence and uncertainty of the markets encourage the implementation of supply chain risk management (SCRM) to make the supply chain more risk-resistant (Christopher & Lee, 2004). The awareness of risks related to the supply chain is well covered in literature, and it is accepted that urgent solutions are needed to avoid critical crises (Jüttner, et al., 2003). Uncertainties have been observed in many areas particularly in supply chain and these need to be continuously monitored and managed (Heckmann, et al., 2015) Therefore, SCRM seeks to establish mitigative strategies to address the risks and their potential impacts on the supply chain. To achieve supply chain goals, such as, sustainability and continuity in the market, it is important to proactively manage supply chain risks due to external disturbances, such as wars, terrorist attacks, natural disasters, internal political conflicts, supplier bankruptcy, to name a few, that disrupt the flow of tangible and intangible assets in the supply chain (Chopra & Sodhi, 2004). These major disruptions are impossible to predict and reveal a lack of preparedness of developments to secure the market during these periods (Heckmann, et al., 2015). These challenges and threats can undermine the stability and security of the business and make it hard for the firm to compete (Annarelli & Nonino, 2016.)

There are also internal challenges of new strategies, such as outsourcing and lean and agile practices, that are being used to cope with market responsiveness and product lifecycle (Christopher & Lee, 2004). Managing supply chain risks in any organisation can involve controlling supply and demand variance to ensure efficiencies in inventory, and this variance is frequently viewed as a liability to efficient supply chain management (Jüttner, et al., 2003). The fundamental role of inventory in a supply chain aids in the balance of demand and supply. For instance, improving the performance of inventory management can be done by implementing Information and Communications Technology (ICT) to accelerate and to smooth product and information flow through a supply chain in an inexpensive and efficient format to match demand and supply for the product (Cachon & Fisher, 2000). Certainly, ICT systems play a tremendous role in improving inventory visibility and vigorous coordination in the supply chain (Power, 2005).

Methodology:

Research is the foundation for knowledge, innovation and application to provide broader benefits for supply chain and inventory management in this area. There is increasing interest in supply chain risk management SCRM within the academic and industrial environment, and there are several academic journals and resources on topics related to it (Al-Najjar, et al., 2016; AlGhamdi, et al., 2011). The methodologies that guide and support risk inventory management evaluation vary depending on the approach and method preferred by the researcher. The real benefits and impacts of the different methods used involve providing data, knowledge and insight to solve a particular problem or to explore an unknown phenomenon.

A qualitative approach, involving interviews can be useful in providing more insight into the issues faced by managers and the best practices that are followed by them (Yin, 2009). Using interviews, a significant amount of data were pre-tested and supplemented with findings from interviews with senior executives managers in companies working in Iraq market. In addition, the methodologies can be considered diagnosis tools that allow researchers to appraise information related to safety stock; however, some papers used data collection to support the understanding of meanings, beliefs and experiences, while others collected data based on accordance with certain research vehicles and underlying research questions. Some studies do combine quantitative and qualitative methods, which are useful in generating data (Creswell, 2013, p. 12). This is considered a common approach, and it supports the set of findings from one method of data collection with another method underpinned by another methodology (Creswell, 2013, p. 12).