Inventory Management at Southern Toro Distributorship - Essay Example

Inventory Management at Southern Toro Distributorship Summary The case provides a description of a conversation between Joe Melaney, owner of the Toro Distributorship in Galveston, Texas, and his son Joe Jr. (Schroeder, Goldstein & Rungtunasatham, 2010). Southern Toro Distributorship distributes, installs, and replaces irrigation systems. The subject of discussion between the two is the decision that is to made up on the spring season order for the entire irrigation line. During the discussion, various issues emerge that range from the future ownership of the organization to the property inventory level for specific parts (Schroeder, Goldstein & Rungtunasatham, 2010).

From the case, two topics can be derived. The first topic takes into account the specific problems affecting the distributorship and involves the development of an effective system for managing independent demand inventory. This focuses on analyzing how the distributorship determines the quantities of irrigation products it orders in keeping up with demand that shifts erratically. The second topic that arises from the case is the vital aspect that is inventory management as a policy variable.

Southern Toro is a distributorship and thus its profitability is heavily reliant on inventory management.Question 1 In the event that Joe Jr. does assume control of the distributorship, a financial analysis of the company would become imperative. The exhibit TN-1 provides some of the common financial ratios for the fiscal years from 2007-2009 (Schroeder, Goldstein & Rungtunasatham, 2010). The ratios indicate that the distributorship has been increasing its net worth steadily over the years; however, the return on its invested capital has been low.

The distributorship’s projected future financial outlook is also alarming. The exhibit TN-1 reveals that Toro is highly leveraged and a sharp increase occurred in 2009 (Schroeder, Goldstein & Rungtunasatham, 2010). This implies that any future financing will come at increased cost. The distributorship’s liquidity is also decreasing, which further implies that Toro would become forced to look for additional financing unless other steps become undertaken. The inventory turnover also indicates that the distributorship’s activity is also decreasing.

The exhibit also reveals the distributorship’s Return on Assets- ROA is not high and has been declining steadily over the years. The ROA can become improved with better management (Jones & George, 2007). However, it may probably never hit the extreme highs. It is upon Joe Jr. to decide if or not the ROA can be enough to satisfy his ambitions. Based on the analysis provided in the above paragraph, it is apparent that Toro is likely to undergo financial difficulties if current trends are to be maintained.

The sale of irrigation equipment relies heavily on the weather and the distributorship must plan to become flexible in a bid to counter irregular sales patterns. Toro’s liquidity, particularly quick liquidity, must become re-established and maintained to guarantee the distributorship’s ability to pay off its short term liabilities without relying on its sales of inventories. Toro’s future plans must also become based on good inventory management. A majority of the distributorship’s assets are in inventory but the inventory levels do not reflect its sales levels.

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