Inventory management

• why do firms hold inventory?

  stocks are needed to allow production to continue raw materials and part finished goods to allow the firm to meet demand

  reduce risk of faulty goods not being able to be repaired
• what are the three main forms of inventory?

  raw materials and components

  work in progress

  finished goods
• why would a firm hold unplanned stocks?


  inability to sell goods, mistakes in sales forecasting or production planning
• what is the role of inventory control?


  higher inventory levels require more storage space which incures fixed costs, higher the inventory levels the greater the amount of money tied up in stock,higher inventory levels carry greater risk
• what is buffer stocks?


  buffer inventory is the minimum level of inventory that the firm wishes to hold at any particular point . if stock falls below buffer stock business may run out of stock

  if a business runs out of stock its called a stock out.
• why would a firm want to avoid an inventory out?


  unable to meet customer demands, higher unit costs, increase costs of urgent supplies
• what influences the size of a firms bufferinventory?


  when the costs of a stock are high then the level of buffer stock will be greater

  rate at which stocks are used up, faster the rate of usage
• what is the maximum inventory levels?


  maximum level of inventory a firm can hold at any one time depending on warehouse space, opportunity costs, perishing goods
• what is inventory rotation?


  method of organised stocks so that the oldest stocks are used up first, instead of the newest ones
• why is inventory rotation used?


  used in retailers to avoid perishable goods becoming out of good