INVENTORY MANAGEMENT POLICIES OF GOLD JEWELRY

RETAILERS

Jingmin Zhang, Yongsheng Zhou, Zhe Zhou and Huanjun Yang

Beijing Technology and Business University, 100048, Beijing, China

Keywords: Gold jewelry, Inventory turns, Demand forecasting, Replenishment strategy.

Abstract: With the gradually increasing pressure of market competition and the diversification of consumers’ choices,

more and more gold jewelry retailers begin to seek the ways and means to reduce costs and improve profits,

inventory management also is given more meaning and significance. Starting from the logistics

characteristics of the gold jewelry, This article analyzes the prevalent inventory problems of gold jewelry

retailers, such as low inventory turns, inventory structural imbalance and so on, and main reasons these

problems emerge. On this basis, from supplier management, customer demand forecasting, replenishment

strategy and the goods on display and other aspects respectively, putting forward the inventory management

strategy of gold jewelry retailers.

1 INTRODUCTION

With the rapid development of China’s economic,

the increase in disposable income of residents and

the change in patterns of consumption, the demand

for luxury goods continues to grow. Under the

shadow of the financial crisis, even if the global

luxury goods consumption was significantly

decreased by 10% in general in 2009, Chinese’s

consumption of luxury goods maintained a growth

of 12%

，

set a record of 96 billion dollars, and

accounted for 27.5% of global market shares.

Because the gold jewelry has dual nature in both

consumption and preservation, its growth is

prominent. Therefore, the study of the inventory

management of gold jewelry has a great practical

significance.

2 CHARACTERISTICS OF GOLD

JEWELRY IN LOGISTICS

As a special stock of goods, gold jewelry has unique

characteristics in logistics that are different from the

ordinary goods. These characteristics mainly reflect

in these following areas:

2.1 Great Unit-value of Goods, More

Funds Using

Gold jewelry is mainly produced by gold, and their

purity reaches 99.95%-99.99%. With the continuous

rise in the international price of gold in recent years,

the market price of gold jewelry is also growing.

Trading price of spot gold reached a historic high of

$ 1,366 per ounce in New York Gold Exchange on

October 7, 2010, and the domestic price of gold

jewelry jumped to 366 yuan per gram. The inventory

of the high price of gold jewelry occupies the

enterprise’s more liquid capital.

2.2 Instability of the Price of Goods

Purchased price of domestic gold jewelry is based

on the international gold market price of real-time

transactions. The volatility in the international gold

price leads to unstable market price of gold jewelry.

If you encounter a significant reduction in the gold

price after the purchase, the retail price of the gold

jewelry will be reduced. Forced by market pressures,

both the retail price and the purchased price of gold

jewelry may be flat or the retail price is below the

purchased price. This situation is bound to bring a

certain degree of loss to the gold jewelry enterprises.

517

Zhang J., Zhou Y., Zhou Z. and Yang H..

INVENTORY MANAGEMENT POLICIES OF GOLD JEWELRY RETAILERS.

DOI: 10.5220/0003589005170522

In Proceedings of the 13th International Conference on Enterprise Information Systems (DMLSC-2011), pages 517-522

ISBN: 978-989-8425-55-3

 2011 SCITEPRESS (Science and Technology Publications, Lda.)

2.3 Seasonal Fluctuation in Market

Demand

The demand of gold jewelry is influenced by the

technology, style, price, cultural tradition,

consumption habit and other factors. The largest

influence comes from cultural traditions, especially

in the Spring Festival, New Year and other

important traditional festivals. In China’s traditional

culture, gold is provided with the meaning of wealth

and avoiding disadvantages, so presenting gift of

gold has gradually become a trend in the holiday or

the special day. The role of factors such as cultural

traditions, consumption habits and so on makes sales

of gold jewelry obvious and seasonal volatility.

2.4 The Safety Management of Goods

is the Core of its Logistics

Management

Gold jewelry has strong liquidity, so the safety of

gold jewelry is the core of its logistics process. The

gold jewelry must be stored in the safe, and need the

specialist for custody,both in the process of

transportation and in the storage period.

3 PERFORMANCE OF GOLD

JEWELRY RETAILERS

INVENTORY PROBLEM

3.1 Low Inventory Turns

Inventory is the core asset of gold jewelry retailers,

while a large proportion of the cost of business

operations comes from holding stock. Under normal

circumstances, Inventory complement should be

based on the premise that sales are needed and

product backlog is nonexistent, and the aim of the

inventory reduction is to accelerate inventory

turnover but not affect the sales. But through the

investment of gold jewelry retailers we can find that

the prevalent inventory problems of gold jewelry

retailers are high inventory levels, big money

occupation and low inventory turnover.

3.2 Inventory Structural Imbalance

According to the different materials of gold jewelry,

they can be divided into jewelry gold, K gold

jewelry, K platinum jewelry, gold jewelry covering

with gold leaf and gilded gold jewelry; according to

their different functions, they can be divided into

rings, necklaces, earrings, bracelets,bangles,etc. In

addition, each species can be designed in different

colors, patterns and so on. Therefore, gold jewelry is

different from gold bars, gold coins and other

offerings with a simple store of value. Besides a

store of value, gold jewelry also has a strong

function of consumption. The market demand of

gold jewelry with different functions, color and style

exists significant differences. And most gold jewelry

retailers often appear unreasonable phenomena that

selling goods are out of stock and slow-moving

goods are overstocked.

4 REASONS FOR GOLD

JEWELRY RETAILERS’

INVENTORY PROBLEMS

The reasons for inventory structural imbalances and

the low rate of turnover relate to many aspects, and

the most important reasons are as follows:

4.1 Competitive Relationships of

Supplier

Goods of gold jewelry retailers depend on a steady

stream of supply from supplier. Maintaining a long-

term cooperation with upstream suppliers is to

ensure the supply of goods and meet the customers’

needs. But through the investment of gold jewelry

retailers we can find that most domestic companies

still regard suppliers as their competitors, and strive

by squeezing suppliers to obtain high profits. In

order to obtain lower prices, enterprises replace

suppliers frequently, resulting in the relations

between suppliers and marketing enterprises stay in

the short trading relationship. In such a short

framework of supplier relationships, in order to

prevent out of stock, marketing enterprises have to

hold a large amount of inventory. Statistics show

that the lower offer of goods, the greater probability

of its occurrence of quality and process defects,

resulting in the goods also increase the risk of

backlog.

4.2 Empirical Commodity

Procurement Policy

Since the sales companies can not accurately grasp

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the time and numbers that customers need for gold

jewelry, they can only use the management strategy

of “several times to replenish stocks”, through the

maintenance of certain inventory levels ensuring the

stochastic demand of the market. At the same time,

because the gold jewelry that gold jewelry retailers

sell has relatively small difference in qualities,

styles, varieties and so on, the customer loyalty is

low. In order to avoid losing customers due to

shortages, many companies can only take a more

conservative strategy of procurement of goods, with

sales experience of sales and understanding of the

market, inevitably resulting in a phenomenon that

procurement exceeds the actual needs of the market,

which causes high inventory levels. C. Simple and

extensive inventory policy

Many retailers lack scientific forecasts of

customer demand, so inventory replenishment often

choose the method of periodic replenishment,that

means enterprises inspect and order all types of gold

jewelry on a regular basis (monthly), and order

quantity basically unchanged from last month’s

sales. This ordering strategy has advantages in

simple operation and better stock control, so it is

favoured by gold jewelry sales firms. However, this

ordering policy has ignored the differences on

demand of species so that it is easy to produce

unreasonable consequences on the stock structure.

D. Non-standard inventory management

Many gold jewelry retailers ignore the

classification management of goods in the

storehouse. They often only records the types of

storage products, storage time, quantity (weight) of

goods and price and other simple information. The

original management method can only meet the

basic requirements of the financial aspects, but has

no benefit of reducing inventory levels, improving

fund efficiency and increasing their sales revenue.

5 INVENTORY MANAGEMENT

POLICIES OF GOLD JEWELRY

RETAILERS

5.1 Establishing Long-term Strategic

Partnerships with Suppliers

Enterprises must continue to enrich the product

categories, optimize inventory and improve

inventory control structure in order to meet

consumers’ demand. Consequently, to strengthen

communication and cooperation with suppliers is the

basic strategy of rapid response to customers’

demand, reducing stock and increasing the

efficiency in the use of funds.

The size, strength and business strategy of

suppliers directly affects the retailers management

with a supply chain. Therefore, it is important to

select suppliers carefully to improve overall

competitiveness of gold jewelry supply chain.

Supplier selection is needed to be based on the

comprehensive assessment. Multi-factor selection

method to select gold jewelry suppliers is a common

method. The method chooses the gold jewelry price

level, the capability of supplier’s design and

development, the quality control system, financial

status and the public image, etc. as considerate

factors in evaluating suppliers according to their

own requirements and characteristics of gold

jewelry, and assigns the appropriate weight

according to the importance of the various factors.

Selecting the suppliers at all levels of enterprises

through comprehensive evaluation scores of each

supplier.

Choice of supplier evaluation is completed, the

enterprises can establish different degrees of

cooperation with suppliers based on the results of

assessment. In the process of establishing

cooperative relationship, the signing of cooperation

agreements and the standardization of process are

very important. Therefore, it is necessary for

enterprises to establish supplier management

department that is specifically responsible for the

whole process work of supplier selection,

evaluation, management and so on.

5.2 Scientific Forecasts Demand

Scientific forecasts of future demand are essential to

an inventory manager’s decision-making and

planning processes. Scientific demand forecast is not

only effective in reducing inventory levels, but also

timely adjust the entire inventory management

system according to the change of future demand.

The demand for gold jewelry is influenced by the

income levels of resident and the commodity prices.

Table1 is a company’s statistics about the gold

jewelry sales, average price and per capita

disposable income of urban residents from February

2009 to February 2010. Based on these data,

companies can predict future sales condition through

building the prediction model.

INVENTORY MANAGEMENT POLICIES OF GOLD JEWELRY RETAILERS

519

5.2.1 The Establishment of the Model

The disposable income of urban residents and the

price of gold jewelry are the important factors that

affect sales. Now, assume that the sales of y, the

monthly disposable

income of urban residents of

and the retail price

of gold jewelry have a linear relationship that can be

used a linear regression model (assuming a

significance level α = 0.05):

22110

xxy

++=

5.2.2 The Parameter Estimation

Using the least squares method, parameter estimator

can be obtained.

Table 1: an enterprise’s sales related data and statistics of

disposable income of urban residents.

Month

per capita

disposable

income (

￥)

retail

price

(￥)

sales(

￥)

2009.02 2050 215 163927.17

2009.03 2165 220 165320.69

2009.04 2204 225 165767.42

2009.05 2153 225 165913.36

2009.06 2146 230 165497.23

2009.07 2161 235 165829.52

2009.08 2183 238 166535.27

2009.09 2130 243 166369.85

2009.10 2275 250 167897.54

2009.11 2250 265 165248.52

2009.12 2172 288 161300.29

2010.01 2667 283 168919.26

2010.02 2668 283 168946.15

Source: The website of Beijing Statistics Bureau and the

corporate sales reports.

9.8548.512.5151185

210

−===

，，

According to

RSS

ESS

and

−

=•

, we know

14.14F0.74,R

And statistics of T. respectively are

T =5.22,

T =-3.00.

The result of the regression analysis is:

y=151185.5+12.58

x -54.89

x .

5.2.3 Model Checking

(1) Economic test

One item coefficient

=12.58, indicates that the

monthly disposable income of urban residents

increases 1 million, sales could increase 12.58 yuan;

=-54.89 shows that retail prices increases 1

million, sales decrease 54.89 yuan. The data are

consistent with the general economic law.

(2) Statistical significance tests

① The significance test of parameters

In this set of data, statistics of T. respectively are

=5.22,

=-3.00. For a given significance level

=0.05, checking t distribution table ,we obtain its

critical value

025.0

t （13）=2.16, and because of

=5.22>

025.0

t (13)=2.16 and

=3.00>

025.0

t (13)=2.160,so we

refuse

01 2

H0 0and

ββ

, which show the disposable

income of urban residents and the retail price of gold

jewelry have a significant impact on the sales.

② Goodness of fit test

In this set of data,

R =0.739489, indicates that the

explanatory power of the sample regression equation

is 73.95%.At the same time ,in the total variation in

sales of y, the explanatory variables

x that is the

disposable income of urban residents and

x that is

the retail prices of gold jewelry are in the

interpretation of 74%, that is, changes in the

enterprise sales by 74% can be explained by the

sample regression equation, so the model goodness

of fit is higher.

③ F-value test

In this set of data, F=14.19.For a given significance level

=0.05,check its critical value in F distribution

table.

The degree of freedom is

v =3,

v =9,

P(F>6.99)=0.05, F=14.19>6.99, so

we refuse the

assumption

210

：

which shows that all

explanatory

variables

x ，

x has a significant

impact on the explained variable y in the regression

equation, that is, the general significance of the

equation is strong.

5.2.4 Forecast

After testing on the parameters and the equations,

we can draw the binary regression prediction

equation:

ICEIS 2011 - 13th International Conference on Enterprise Information Systems

520

y=151185.5+12.58

-54.89

5.3 Optimizing Replenishment Policy

As the value and weight of gold jewelry are higher

and the amounts of funds occupied are bigger, the

inventory carrying cost is higher than the ordering

cost. At the same time, the high profit margins of

gold jewelry makes stockout cost relatively high

.Accordingly, the basic objective of inventory

replenishment policy of gold jewelry is the

enterprise reduces inventory levels to an extreme,

ensuring stockout not happen. For these reasons, it is

more appropriate that gold jewelry retailers adopt

the continuous replenishment strategy. Continuous

replenishment strategy determines a reasonable level

of replenishment of inventory and replenishment

quantity according to the needs of different

commodities and replenishment time. Once the

inventory level is less than reorder point, the

enterprise immediately issue orders for the economic

order quantities; otherwise, there is no

replenishment.

It should be

noted that the replenishment strategy

should be evaluated and adjusted regularly or

irregularly ,based on customer demand, business

conditions and changes in the external environment.

5.4 Regulating the Display of Gold

Jewelry and Library Management

5.4.1 Scientific Design of the Goods on

Display

The display of gold jewelry of all varieties directly

impact on its sales, and then influence the level of

business inventories. According to the statistical

analysis of different types of gold jewelry market,

the profitability of various gold jewelry from strong

to weak is: necklaces, pendants, rings, bracelets,

ornaments, earrings (fall), and gold products.

When a customer go into the store, he does not like

the corner of the store generally, and does not want

to go back, but he likes to take tortuous detours. And

consumers prefer the counterclockwise direction of

flow, so counterclockwise at the entrance is a very

good display position for products. In addition, the

location on the wall that the direction of the master

stream is as high as line of sight, and the display

surface of view of the center point radiation angle of

65° each side are ideal locations of goods.According

to the characteristics of the customer purchase

behavior, combining with the different profitability

of the gold jewelry of all varieties, the goods of

higher purchase frequency such as necklaces and

pendants can be put at the entrance on the counter-

clockwise ,and rings, bracelets and other varieties

can be along the counter clock wise direction of the

display. Gold ornaments, coins and other

memorabilia display goods can be display on the

direction of the master stream ,which are on the wall

and the location of line of sight, and as high as the

center point of view of radiation angle of 65° each

side of the display surface. Of course, the gold

jewelry on display position is not fixed, and also

make the appropriate adjustments, according to

season, seasonal regulations, promotional and other

factors.

5.4.2 The Classification Management of

Goods in the Library

Enhancing the classification management of goods

in the library is important aspect on controlling

inventory levels, improving cash flow rates and

ensuring the normal sales of goods. For this reason,

the gold jewelry in the library management can use

ABC management principles.According to the

amount of annual sales of varieties of goods, the

goods are divided into three categories of A, B, C.

The A type goods’ proportion of the annual sales

amount is about 80%, but the number of their

species accounts for about 10%.After classification

of inventory items, you need to take different

management practices and procurement policies of

all kinds of inventory.

5.5 Strengthening Management of the

Old Gold Materials and Defective

Goods

In order to attract customers and promote product

sales, many gold jewelry retailers develop a "traded-

in" business. If not be handled in time

，

the gold

business inventory increased by the "traded-in"

business and inventory of the defective products in

the procurement process will not only squeeze the

enterprise storage space, but also influence the

efficiency in the use of funds.

For the second-hand jewelry enterprises acquired in

"traded-in" business, first of all, their quality must be

conducted to determine its gold whether comply

with the standard of thousands of gold. Second,

simple packaging of old material to avoid confusion

INVENTORY MANAGEMENT POLICIES OF GOLD JEWELRY RETAILERS

521

with other jewelry. Finally, they will be wrapped to

the good suppliers in the next order.

6 CONCLUSIONS

Solving gold jewelry inventory problem needs the

basic concept of supply chain management as the

guide, and we should plan overall and control

comprehensive from the aspects, such as keeping the

strategic partnerships with suppliers, scientific

forecasts of future demand, a reasonable choice of

order strategy, scientific of goods on display,

standardization of reverse logistics and so on.

REFERENCES

Xi Wen Li, Bin Li, Inventory Control and Management,

Beijing: Mechanical Industry Press, 2005.3.

Baoren Li, Econometrics,Beijing: Mechanical Industry

Press, 2008.2

Minggui Sun, Consumption Logistics Management,

Beijing: China Social Sciences Publishing House,

2005.5.

Cai Feng Gao, Purchase,sales,storage of the store

merchandise management, Beijing: China

Development Press, 2009.

Zhihong Fan, store merchandise management, Beijing:

Mechanical Industry Press, 2006.

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