3.4.5 Managing inventory and supply chains

• Inventories are the raw materials, work in progress and finished goods held by a firm to enable production and meet customer demand
• Some influences on the amount of inventory:

  • Demand and expected demand - failure to have goods available for sale is very costly, demand may be seasonal or unpredictable
  • Need to manage working capital - holding inventories ties up cash in working capital, there is an opportunity cost with inventory holding
  • Risk of inventories losing value - longer stocks are held, the greater risk that they cannot be used or sold
• The cost of holding stock:

  • obsolesce risk - could become obsolete
  • interest costs - tying up capital
  • cost of storage - warehouse cost
• What can be seen in the inventory control chart?


  the amount of inventory a business holds

  
• What are the benefits of not holding stocks?

  Lower inventory costs

  Less capital tied up
• What are the benefits of a inventory control chart?


  Efficiency