This document is an introduction to inventories. It explains why one must keep inventories, discard inventories. It also explains the various types of inventories.
Inventory or stock is the accumulation of materials, customers and information as
they flow through processes or networks. They are alternatively called stock. They
can be found at different stages of the operation and not just represent the ‘finished
goods’. They represent an investment in resources and reducing them can release
large quantities of cash. These stored materials compensate in times when there is a
difference between supply and demand.
Inventory Management involves policies and procedures that monitor levels
of inventory. This management is always in accordance to the capacity planning.
Reasons to avoid inventories
1. Storage and handling– the more inventory that is carried, the more space we
need and resources to handle it.
2. Interest and opportunity cost -- money tied up in inventory could have been
used for other purposes (working capital, investment, etc)
3. Property taxes and insurance premiums -- taxes can be assessed on size of
inventory, inventory is considered as a risk (not only because it implies a degree
of speculation) but also in case of damage-insurance on this inventory is
proportional to the size
4. Shrinkage and spoilage -- shrinkage occurs when items are misplaced, stolen
or shoplifted, spoilage occurs when the product is time sensitive (whether it’s
because of customer desirability or quality).
Reasons to have inventories
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