Reasons for holding inventories

For example, organizations in the U. Other countries often have similar arrangements but with their own accounting standards and national agencies instead. A discussion of inventory from standard and Theory of Constraints -based throughput cost accounting perspective follows some examples and a discussion of inventory from a financial accounting perspective. Whereas in the past most enterprises ran simple, one-process factories, such enterprises are quite probably in the minority in the 21st century.

Reasons for holding inventories

Having enough inventory is essential, but having too much can be cumbersome and expensive. You might be able to get better prices on inventory by buying in volume, and your production may be more efficient when you produce more inventory and achieve economies of scale.

But cash-flow shortfalls can easily wipe out these advantages. Shifting Demand The inventory you have on hand today may not be the inventory your customers want tomorrow. Clothing goes out of style and economic climates shift, making customers more likely to buy pricier or less-costly items, depending on the economy.

Innovations render established products obsolete, such as you can see with the example of digital photography that has put a very serious dent in the 35mm-film industry. Clutter Inventory takes up space.

Reasons for holding inventories

The more inventory you have, the more you must store. With perishable inventory that needs to be rotated, if you have more inventory than you can manage, it will be more difficult to keep track of dates.

What can be a company’s motive for holding the inventory?

Handling excess inventory takes additional labor hours, which can cancel out the savings you get with volume discounts.

Successful inventory is a matter of finding the sweet spot between having what your customers want, when they want it, but not having so much that it costs you additional money to manage it or reduce it for clearance.

References 2 Process Excellence Network: In she transformed her most recent venture, a farmers market concession and catering company, into a worker-owned cooperative. She does one-on-one mentoring and consulting focused on entrepreneurship and practical business skills.Jul 04,  · There are five major reasons for holding inventory: (1) Pipeline inventory A pipeline inventory is the minimum inventory an organisation needs in order to function.

What can be a company’s motive for holding the inventory?

E.g. a producer of wine that needs to age for two years in order to be sold needs a minimum inventory of wine for two years in order to exist.

(2). Depending on the reason for holding inventory, inventories are given different names: pipeline inventory, seasonal inventory, cycle inventory, decoupling inventory/ buffers, and safety inventory.

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It should be noted that these five reasons are not necessarily mutually exclusive and that, in practice, there typically exist more than one reason. Jul 04,  · There are five major reasons for holding inventory: (1) Pipeline inventory A pipeline inventory is the minimum inventory an organisation needs in order to function.

E.g. a producer of wine that needs to age for two years in order to be sold needs a minimum inventory of wine for two years in order to exist. (2).

What can be a company’s motive for holding the inventory? A company has various motives for holding the inventory as stated below: 1) Transaction Motive: The Company may be required to hold the inventory in order to facilitate the smooth and uninterrupted production and sale operations.

It may not be possible for the company to procure the .

Inventory - Wikipedia

recognizes that inventories are not of equal value to a firm and that as result all inventories should not be managed in the same way Dead inventory (dead stock) fourth category, D, on ABC analysis, which refers to a product which .

Jun 28,  · Excess inventory is a liability because it ties up cash that you may need for more urgent concerns. In addition, demand can shift, making accumulated inventory obsolete, and .

Reasons for holding inventories
Need for Inventory Management - Why do Companies hold Inventories