Currently the University Bookstore is facing an obsolescence of its unsold textbooks in the warehouse. This memo is trying to find the inventory estimation method, the major causes of loss, and suggestions to improve bookstore’s internal control.
Retail Method/Cost-To-Retail Ratio
Retail method and estimation method are the two ways to estimate inventory. For the University Bookstore and other retailers, retail method is the better choice. First, the retail method is easier to use. Because of the seasonal sales period and a wide variety of products with different costs, it is complicated for retailers to record every product’s costs, prices and sales. The retail method ...view middle of the document...
This condition reduces the value of used books, and increases the difficulty for bookstore to estimate students’ demands for new and used books. However, University Bookstore doesn’t make quick and effective response to the change of market circumstance. According to Emilio’s textbook inventory valuation, the bookstore is facing $635,000 cost in excess of market value in June 30, 2010, while the annual cost of unsalable textbook in the past twelve years is only $185,000. Thus, the bookstore definitely didn’t make enough responses for the rapid changes in textbook market, which lead to the overestimating of students’ demands.
Also, the weakness of bookstore’s inventory physical flow causes the large amount of unsalable textbooks. According to the inventory physical flow in Exhibit 4, the University Bookstore missed a key section in order to avoid losses of obsolete books – subsequent tracing after the books being moved to warehouse. Currently, due to the lower overall staff levels, no one is responsible for those inactive books in the warehouse. No one knows there are eight racks of books in the warehouse until the warehouse manager called Norma. This weakness leads to the missing of the best time of clearance sale, and the loss due to obsolescence.
Other Major Issues
The external environment changes and unprofessional employees are also two major causes of inventory loss.
Current years, publishers reduce the revision cycle of textbooks. This issue leads to bookstores’ misestimate of textbook demands, and the faster value devaluation of new and used books. Moreover, the University faced a decreasing of student enrollments in recent years, and cancelled a lot of classes. Thus, more textbooks became unsalable, and move to warehouse.
According to the organization chart for university store senior manager, there is no senior manager in bookstore department. The daily affairs of bookstore will be directly sent to Norma, who is the director of retail service. The vacancy of bookstore manager causes the lack of ability to quickly solve problems, and frequently monitoring. Also, in order to reduce salary costs, the...