Mba Finance Management
Q.1 examine the reasons for holding inventories by a firm and also discuss the techniques of inventory control?
Inventory is a necessary evil that every organization would have to maintain for various purposes. Optimum inventory management is the goal of every inventory planner. Over inventory or under inventory both cause financial impact and health of the business as well as effect business opportunities.
Inventory holding is resorted to by organizations as hedge against various external and internal factors, as precaution, as opportunity, as a need and for speculative purposes.
Reasons for holding inventories by a firm
• Meeting anticipated demand
It does not matter whether it is a production, retail or even a service-oriented business – there must be adequate supplies of materials/ products to meet expected demand for goods or services. For businesses or departments where the demand is exceptionally high, consistent and there is rapid stock turnover, this is critical to ensuring that they can comfortably meet expected demand and keep customers satisfied.
• Guarding against shortages
In times are shortages, adequate inventory is a blessing. Businesses that can efficiently hold stock have a competitive advantage. This is because the production runs/ services of those businesses would not be immediately affected by adverse supply conditions. Therefore, holding inventory ensures continuity in the short-to-medium term.
• Benefitting from bulk discounts
Trade discounts are usually available for bulk purchases. In many cases, the larger the order, the higher the discount is. Businesses seek to hold inventory when the trade discounts make the cost of holding it worthwhile. Apart from reducing the unit cost of each item, ordering costs (carriage inward and import duties for example) are also reduced.
• Dealing with variations in usage or demand
A spike in production levels or increased inefficiency in usage of materials can lead to increased demand for
Inventory is a necessary evil that every organization would have to maintain for various purposes. Optimum inventory management is the goal of every inventory planner. Over inventory or under inventory both cause financial impact and health of the business as well as effect business opportunities.
Inventory holding is resorted to by organizations as hedge against various external and internal factors, as precaution, as opportunity, as a need and for speculative purposes.
Reasons for holding inventories by a firm
• Meeting anticipated demand
It does not matter whether it is a production, retail or even a service-oriented business – there must be adequate supplies of materials/ products to meet expected demand for goods or services. For businesses or departments where the demand is exceptionally high, consistent and there is rapid stock turnover, this is critical to ensuring that they can comfortably meet expected demand and keep customers satisfied.
• Guarding against shortages
In times are shortages, adequate inventory is a blessing. Businesses that can efficiently hold stock have a competitive advantage. This is because the production runs/ services of those businesses would not be immediately affected by adverse supply conditions. Therefore, holding inventory ensures continuity in the short-to-medium term.
• Benefitting from bulk discounts
Trade discounts are usually available for bulk purchases. In many cases, the larger the order, the higher the discount is. Businesses seek to hold inventory when the trade discounts make the cost of holding it worthwhile. Apart from reducing the unit cost of each item, ordering costs (carriage inward and import duties for example) are also reduced.
• Dealing with variations in usage or demand
A spike in production levels or increased inefficiency in usage of materials can lead to increased demand for