Advantages And Disadvantages Of Inventory

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GENERAL INTRODUCTION: MEANING OF INVENTORY: The literary meaning of the word “INVENTORY” is stock of goods. To the finance manager inventory means the value of Raw Materials, Work In Progress, Finished Goods, Spares, Consumables, Spares, scrap. Inventory represents those items, which are either stocked for sale, or they are in process of manufacturing or they are in the form of materials, which are yet to be utilized. IMPORTANCE OF INVENTORY: Inventories constitute the largest component of current assets .A stock out creates an unpleasant situation for the organization. If a firm carries excessive inventory the added carrying cost may represent difference between profit & loss. NEED TO HOLD INVENTORY:  Production process.  Proper flow of goods.  Discounts. ADVANTAGES OF HOLDING INVENTORY:  Quick service.  Discounts.  Reduction in ordering cost.  Efficient production runs.  Production against shortage.  Special circumstances.…show more content…
The items identified as vital require more attention. EOQ TECHNIQUE: Economic Order Quantity is the quantity of any item that should be ordered in order to keep inventory cost. Carrying cost and ordering cost to the minimum. This technique controls the quantum or inventories as well as of the order. JIT TECHNIQUE: Just in time focuses on ordering inventories as and when the need arises. It focuses on reduction in investment in inventories and in carrying cost. It improves return on investment as the amount blocked in inventories is minimized. However, the success of JIT technique depends in faster communication with suppliers and the seat lead-time of various items. This technique is successful when the organization has easy geographical approach and is near to the sources of inputs
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