Inventory
What is inventory?
- A physical resource that a firm holds in stock with the intent of selling it or transforming it into a more valuable state.
Purpose of inventory management
- How many units to order? •
- when to order?
PURPOSE OF INVENTORY
Reduction of cost is main aspect to be competitive in market using inventory management
Improvement of profits
Improvement of Efficiency of a firm
Reduction of capital investment improves return on investment
Raw materials
Purchased parts and supplies
Finished Goods
Work-in-process (partially completed products )
Items being transported
Tools and equipment
Raw Materials – Basic inputs that are converted into finished product through the manufacturing process
Finished Goods – Completely manufactured products ready for sale Supplies
1. To decouple or separate various parts of the production process
2. To decouple the firm from fluctuations in demand and provide a stock of goods that will provide a selection for customers
3. To take advantage of quantity discounts
4. To hedge against inflation
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