If the supplier fails to deliver, it’s the business that suffers.A little setback in the process can affect the entire chain of the business.The cost of going out of stock can cost not only profit but the goodwill of the business and loss of customers.Related article Inventories Costing: Method, Example And More Disadvantages The approach is the most suitable if the inventory is perishable and lead time short.The working capital tied up in inventory is lower that helps to increase profitability.The cost of safety and holding of the goods is lower.There is a lower/no risk of inventory obsolescence.It’s a flexible approach to stock management and helps you to avoid the hustle of huge inventory management.The maintenance of the low inventory requires a lower cost of holding.Advertisements Maintaining low/no inventory Advantages Normally, the businesses have two sides of stock management which include maintaining little or no inventory and holding higher stock. The concept of inventory control applies to all types of inventory that include raw material, finished goods, and spare parts, etc. The answer to this question is dependent on the nature of the business, stock management policies, resources of the business, lead time of the inventory, cost of ordering and the cost of holding, etc. The concept of inventory level control starts with the question that how much should be the threshold of inventory to meet expected/unexpected demands of the production/sales. It’s the level of inventory that should be available within the warehouse all the time.Īn important concept of inventory level controls is to create a balance between capital tied up in the inventory and the availability of the inventory all the time for production.Īdequate management of the inventory level helps to ensure that excess working capital is not tied in the working capital and inventory is available for production all the time. Inventory level control is referred to as controlling the threshold of inventory to avoid delay in production.
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