Briefly explain the reasons for keeping ‘stock inventory’.

1.	Briefly explain the reasons for keeping ‘stock inventory’.
Answer» There are 3 basic reasons for keeping inventory: i) Time : the time lag present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this lead time. However , in practice inventory is to be maintained for consumption during ‘ variations in lead time’. Lead time itself can be addressed by ordering that many days in advance. ii) Uncertainty: Inventories are maintained as buffers to meet uncertainties in demand, supply and movement of goods. iii) Cost effectiveness: Ideal condition of ‘’ one unit at a time at a place where a user needs it, when he needs it ‘’ principle tends to incur lots of cost in terms of logistics. So bulk buying, movement and storing brings in cost effectiveness, thus inventory is needed.

Answer»

There are 3 basic reasons for keeping inventory:

i) Time :

the time lag present in the supply chain, from supplier to user at every stage, requires that you maintain certain amounts of inventory to use in this lead time. However , in practice inventory is to be maintained for consumption during ‘ variations in lead time’. Lead time itself can be addressed by ordering that many days in advance.

ii) Uncertainty:

Inventories are maintained as buffers to meet uncertainties in demand, supply and movement of goods.

iii) Cost effectiveness:

Ideal condition of ‘’ one unit at a time at a place where a user needs it, when he needs it ‘’ principle tends to incur lots of cost in terms of logistics. So bulk buying, movement and storing brings in cost effectiveness, thus inventory is needed.

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