Inventory Part2

ACCA F2 - Management Accounting

Analysis of the above paragraph makes clear the need to hold and to minimise the level of inventory. Organisations need to hold inventory in order to avoid break in receive of raw material and supply of finished product and maintain customers confidence. This does not mean organisation should hold heaps of inventories. They need to hold sufficient to operate without break-ups. This level of inventory is known as an optimal level. The purpose to keep inventory are: process buffer, fluctuations in demand, unreliability of supply, price protection, quantity discounts and lowering order cost.

Theorizing inventory does not possibly solves the quantifiable costing problems related to inventory. Ordering and holding of inventory increases associated cost of handling inventory. Cost related to storage and security of assets increases with increasing risk of damage, deterioration, obsolescence and theft of inventory. These costs need consideration while defining optimal level of inventory.

Inventory as both tangible and intangible object - Page 3 = Traditional -thinking organization assume that they must carry inventory in stock in order to meet demand. Furthermore, accounting systems treat inventory as an asset, which adds value to the company. However, companies that embrace lean, just in time (JIT), and/or supply chain concepts are only required to have access to it when they need it. These companies understand that they don't necessarily have to carry inventory in stock. They are only required to have access to it when they need it. These companies understand that in many instances information can replace physical inventory and that information is much less expensive than actual inventory. Retailers don't carry substantial inventories of items just in case they decide to have a special promotion; instead, they plan the promotion in advance and have the manufacturer deliver the inventories just in time for the sale. Manufacturers understand the seasonality of their goods; they make snow blowers in time for the fall/ early winter selling season and sandals and swim suits in time for late spring/summer. In fact, some mail-order or Internet-based retailers actually carry no stock themselves. They take orders from the customer, then have their suppliers drop-ship directly to the customer.  (Go to the article link below to check: Page-8 Tracking the paper life for Inventory and Page 12 - Electronic data interchange for Inventory)

Inventory as both tangible and intangible object