Why businesses hold inventories

Reasons for and against storing inventories

1. Why businesses hold inventories

2. Raw materials and components Work-in-progress Finished goods Almost all businesses hold inventories (stocks) of:

3. Warehousing costs Handling costs Shrinkage costs Insurance costs Obsolescence Opportunity cost Holding inventories adds to a business’s costs

4. The production process- idle Finished goods in stock Trade discounts Why do businesses hold inventories

5. The minimum waste of resources Lower costs and prices Quality To improve competitiveness Lean production

6. Production defects High inventories Over production Idle resources Transporting goods Reasons for waste

7. New products- brought to the market quickly Quality is improved Wastage is eliminated Holding costs eliminated Unit costs are reduced Benefits of lean production

8. No inventories are held by the business Raw materials and components Production process Delivered to the customer Just-in-time (JIT) Inventory control

9. It must remove the costs of not holding inventories. Good relationships and communication with suppliers. Delivered on time- required Quality and Quantity. Flexible Just-in-time (JIT) Inventory control

10. Japanese term Continuous improvement Workers suggest How to improve quality and quantity. Kaizen

11. Activity 15.3