Why do we keep stock or inventory?

1.	Why do we keep stock or inventory?
Answer» There are three basic reasons for keeping an inventory: 1. Time – The time lags 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”. 2. Uncertainty – Inventories are maintained as buffers to meet uncertainties in demand. supply and movements of goods. 3. 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 costs in terms of logistics. So bulk buying, movement and storing brings in cost effectiveness, thus inventory is needed.

Answer»

There are three basic reasons for keeping an inventory:

1. Time – The time lags 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”.

2. Uncertainty – Inventories are maintained as buffers to meet uncertainties in demand. supply and movements of goods.

3. 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 costs in terms of logistics. So bulk buying, movement and storing brings in cost effectiveness, thus inventory is needed.

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