Advantages and disadvantages of inventory pdf

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advantages and disadvantages of inventory pdf

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Inventory is often the largest asset a company has. Inventory is also expensive to purchase, putting a company in the red until it sells those products for a profit. Major overstock can even put a fledgling company out of business. Inventory management allows a company to avoid this risk, ordering just enough to meet consumer demand — no more, no less.

What are the benefits of Holding Inventory in a firm

No business can operate without inventories. It needs inventory as a protection against uncertainty, for efficient processing of material, and to permit transit and handling. So the companies carry inventory for following reasons: 1. Uncertainty of demand: Uncertainty of demand and lead time necessitate building of safety stock.

These are also called as buffer stocks. Larger the uncertainty of demand and supply; the larger will have to be the amount of buffer stock. Inventories protect him against unforeseen failures in supply or increase in demand. Even a tire on a suppliers delivery truck could interrupt production if it delayed a shipment of needed material.

Inventories protect production against non anticipated delays. Uncertainty in lead-time: The supplier is usually not in a position to supply goods as per decided dates or as he promises. In the context of the vendors in India it is observed that there is a rather rare supplier who supplies as per promises and of the quality essential. This situation leads to overstock the quantity. Time lag in deliveries: Time lag in deliveries also necessitates building of inventories. If the replenishment lead times are positive then stocks are needed for system operation.

Stock built up for scale of economy: Stocks may be maintained to get the economy of scale so that total system cost due to ordering, carrying inventory and backlogging are minimized. Unit cost normally is lowest when material is purchased, handled, and processed in large quantities, which in turn generates larger inventories.

In addition, inventories act as a cushion between operations or processes. Pipeline inventory: Stock may build up as a pipeline inventory or work-in-process inventory due to continuation of production and transportation rates. This includes materials actually being worked on or moving between work centers or being in transit to distribution centre and customers. Seasonal demand: When the demand is seasonal, it may become economical to build inventory during periods.

Quantity discounts: Inventory may also be built up for other reasons such as: quantity discounts being offered by suppliers, discount sales, anticipated increase in material price, possibility of future nonavailability, etc. Transport: Materials may be transported thousands of miles before they are incorporated into an end product.

Ease of production system: Company sales and manufacturing department find it convenient to have stocks that are more than required. The marketing as well as manufacturing persons feel the safe and secured. Scheduling, production control and inventory management are more difficult and costlier when stocks are kept at optimum level. The manufacturer may lack the skills necessary for such control or be unwilling to incur the control costs, so he carries extra inventory in order to prevent stock units.

Future cost increase: Sometimes the material manager expects prices of materials to rise in near future. So he purchases stock at lower prices.

Disadvantages of High Inventory Having high inventory levels generally means your company is struggling to turn over inventory and make sales. When you have a high level of inventory, you face significant costs and inventory management requirements that have disadvantages relative to companies that have better inventory turnover and require less resource utilization to manage inventory.

Poor Turnover Companies typically want to produce or maintain only enough inventory to meet immediate demands and to avoid stockouts. When companies have excessive amounts of inventory, they. This is not a good situation as businesses need to turn over inventory efficiently to maintain reasonably high profit margins and to avoid the costs and other disadvantages that come with high levels of inventory.

High Costs Carrying excess inventory has significant costs. One of the highest costs for many companies is financing the purchase and holding of inventory.

Also, the more inventory you hold, the more you have to spend on labor to manage it, space to hold it, and in some cases, insurance to protect against its loss or damage. Physically counting and monitoring the levels of inventory you hold also takes time and has costs.

Loss or Damage Related to the high costs of high inventory, some inventory can also go bad after a certain amount of time and go to waste. When retailers buy excess inventory of perishable food items, for instance, they may have to throw out inventory that spoils or becomes rotten. When you carry high inventory, you also have greater exposure to lost or damaged product. Thieves have more products to choose from and you have greater potential for product to turn up missing or broken when you count inventory.

Strategic Planning Time Company leaders typically have to spend more time in strategic planning meetings when the company has high inventory levels. Management must figure out how to communicate with suppliers, how to improve ordering processes or how to increase market demand to reduce the high levels of inventory.

This problem takes away from the ability of these managers to focus on other proactive or more important strategic decisions to move the company forward. Dealing with inventory problems is a more reactive strategy to resolve the issue at hand. Open navigation menu. Close suggestions Search Search.

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Advantages & Disadvantages of Excess Inventory

Some advantages of inventory management include ensuring that a business does not spend money on unnecessary product orders and tracking which products are selling and which are not. Some disadvantages are that it can be time consuming and that small businesses with limited products may not need an inventory system. Another advantage with inventory management is that a comprehensive inventory system keeps the operation of the business streamlined. A computerized system makes taking inventory even easier by shortening the amount of time that inventory is taken. It can track specific serial numbers for products accurately and digitally tallies stock by any time increment the business owner or manager prefers.

No business can operate without inventories. It needs inventory as a protection against uncertainty, for efficient processing of material, and to permit transit and handling. So the companies carry inventory for following reasons: 1. Uncertainty of demand: Uncertainty of demand and lead time necessitate building of safety stock. These are also called as buffer stocks.

Advantages of Holding Inventory in a Firm. If the firm places a large order of certain materials, the suppliers of the materials will give generous quantity discounts by reducing the price. This quantity discount will reduce the cost of goods of the firm and increase profits earned on sale. By ordering in large numbers, a firm can reduce the cost it incurs. Some of the cost involved when making an order is forms that must be completed, approvals needed to be obtained and the goods arrived must be accepted, inspected and counted. Then an invoice must be issued and payment must be made. The cost of receiving materials may vary according to the number of orders made.


policies, systems and reduce the inventory cost. Objective of the Study. 4. To study of concept of Inventory control. 5. To study of Advantages of Inventory control.


Just in Time (JIT) Advantages and Disadvantages

For a business that sells products, having inventory on hand is part of creating a positive customer experience. When customers can get items quickly, loyalty is built because customers know the business keeps products in stock. If inventory moves regularly and quickly, business owners are likely to carry some excess inventory of the most popular items. Many business owners can take advantages of lower wholesale costs when they buy larger quantities of units. This makes sense for regular items that the business knows will sell, because the business is confident it will move product effectively and not be left with it.

There are several pros for utilizing this type of application for your firm. Some cons can also be associated with inventory control software, however, these stop being a challenge should they be managed in a very suitable fashion. Furthermore, should you use one of the best inventory applications in the market, you almost certainly do not possess to handle cons. Inventory management program can be a specialized computer based software familiar with track various product quantities, orders, sales and deliveries.

One of the most important aspects of every item based business is your inventory. Your inventory is your main source of your revenue, so it is essential to be smart about making decisions about how much inventory you have, how much you should store, and how much to reorder. This article will help you understand the different aspects of inventory control, as well as share some general rules of thumb. You are able to easily and quickly fill all customer orders as soon as they come in, without having to worry about waiting on your stock to come in to ship their order out. By keeping stock on hand, you are able to guarantee, up to a certain point, that you will not run out of a particular item, and you have less to worry about if a product is discontinued.

Advantages & Disadvantages of a Computerized Inventory Management System

Companies like to use JIT as it is seen as a more cost efficient method of holding stock. Its purpose is to minimise the amount of goods you hold at any one time, and this has numerous advantages:. This reduces the amount of storage an organisation needs to rent or buy, freeing up funds for other parts of the business. Waste reduction : A faster turnaround of stock prevents goods becoming damaged or obsolete while sitting in storage, reducing waste. I have read and accept the privacy policy Click submit once and you'll receive a confirmation email shortly Disadvantages of just in time inventory management JIT unfortunately comes with a number of potential disadvantages, which can have a significant impact on the company if they occur. Risk of running out of stock : By not carrying much stock, it is imperative you have the correct procedures in place to ensure stock can become readily available, and quickly.

Any business that sells products needs a reliable method for inventory management. With bar codes, point-of-sale software and warehouse tracking, computerized inventory management systems make it easy for businesses to stay updated consistently. As with any new system implementation, business owners should consider the advantages and disadvantages of using a computerized inventory system before writing a check. Computerized inventory informs employees and customers within seconds whether an item is in stock.


Motives for holding Inventories. ➢ Factors Affecting Volume of Inventories. ➢ Advantages of Inventory. ➢ Disadvantages of Inventory. ➢ Inventory Control.


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Inventory management is the art of managing the inventory in an organization. And software which is a computer-based system used to serve this purpose. This inventory management system or software generally used by many companies and it helps in avoiding overstock and shortage of inventories. Comprised of many components, the inventory management system makes handling the inventories an easy and simpler task. Owing to the inventory management services, the overall efficiency and productivity of the business improve.

Advantages And Disadvantages Of Inventory Management Systems

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