Inventory management

Advantages and Disadvantages of Holding Stock
Inventory or stock refers to the amount of raw materials, work-in-progress and finished goods that a business has on hand at any particular point in time.

Advantages

-having stock on hand means customers' needs can always be met

-if a particular line runs out, an alternative can be offered, thereby generating income instead of a lost sale

-reduces lead times between order and delivery

-generates immediate revenue, as it is hard to generate revenue from partially transformed goods

-demand is always met at every store, as stock can be held at a central distribution centres

-a store of stock allows the business to promote the use of products in non-traditional or even new markets

-older stock can be sold on sale, generating cash flow as it attracts sales of other products

-stocks are assets and reflect on the business's balance sheet

-making products in bulk may reduce cost as there are economies of sale, which could result in being cheaper than the price of holding stock

Disadvantages

The trend is to hold as little stock as possible, the 'make-to-order' approach is adopted.

-the costs on holding stock (storage charges, spoilage, insurance, theft, handling expenses)

-invested capital, labour and energy cannot be used elsewhere as it has been used to create the stock

-cost of obsolescence, can occur is stock remains unsold

LIFO (last-in-first-out)
Method of pricing inventory assumes that the last goods purchased are also the first goods sold and therefore the costs of each unit sold is the last cost recorded. (Mainly for recording less profits, therefore less tax to be payed.)
-May overstate tock cost and understate profit (especially when cost of goods rises over time). It also may undervalue stock on hand at the end of the period

FIFO (first-in-first-out)
Method of pricing inventory assumes that the first goods purchased are also the first goods sold and therefore the cost of each unit sold if the first cost recorded.
-May understate stock costs and overstate profits. Stock at the end of the period may be overvalued.

JIT (just-in-time)
JIT inventory management approaches ensures that the exact amount of material inputs will arrive only as they are needed in the operation process -a lean production process.
Saves money:
-no expensive holding or insurance costs
Requires: -flexible operations processing
-be able to respond quickly to change in demand
-Reliable supplier delivered which must be received at the appropriate time

	Created by shaycrystal4 over 8 years ago

	Copied to Note by shaycrystal4 over 8 years ago

	Copied by Shia Couture over 8 years ago

ACT Year 12 Certificate Business Studies Note on Operations Strategies - created from Mind Map, created by Shia Couture on 13/10/2015.

Operations Strategies - created from Mind Map