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The decision should be
based on customer preferences and on delivery times and costs.

For example, if
customers in a certain region prefer online shopping to physical walk-in retail
stores, then a retail store in that region would not have much reason to carry
a significant finished goods inventory. Likewise, for the opposite. If
customers prefer walk-in purchases as opposed to online shopping, then retail
stores in that region would benefit from having finished goods inventory.

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In the case of Apple and
Gateway, Gateway decided to carry non-finished goods inventory in an
inappropriate setting. As they instead focused on selling configurations of
their PCs instead and delivered them from their manufacturing plants and not
their retail stores, Gateway suffered as the customer base would rather receive
their goods immediately from the retail store. Apple, on the other hand,
stocked finished goods in their retail stores which allowed customers to
immediately receive their goods after their purchase at the retail stores. This
helped them as they catered to what customers preferred.


Reasons not to keep
finished goods inventory:

Storage costsMaintenance costsCompetitive turnover of
finished goods when newer products are introduced.

These would be products
with some or all of the following characteristics that can be carried in a
finished goods inventory:

•  Products with a steady demand
demand within the market

•  Products with high demand within
the market

•  Products
that address a need for “no waiting time” from the customer

•  Products with low inventory cost

•  Products with an extended
inventory life

On the other hand,
products that are best manufactured to order are products with some or all of
the following characteristics:

•  Products that allow customization
based on customers’ preferences and needs

•  Products with highly uncertain or
low demand demand within the market

•  Products for which the customer
can wait (e.g. furniture)

•   Products with high storage
and inventory cost

•   Products with low inventory

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