Explain the merits and limitations of inventory management
Answers
Scientific inventory control provides the following benefits:
1. It improves the liquidity position of the firm by reducing unnecessary tying up of capital in excess inventories.
2. It ensures smooth production operations by maintaining reasonable stocks of materials.
3. It facilitates regular and timely supply to customers through adequate stocks of finished products.
4. It protects the firm against variations in raw materials delivery time.
5. It facilitates production scheduling, avoids shortage of materials and duplicate ordering.
6. It helps to minimise loss by obsolescence, deterioration, damage, etc.
take advantage of price fluctuations through economic lot buying when prices are low.
Limitations of Inventory Control:
(i) Efficient inventory control methods can reduce but cannot eliminate business risk.
(ii) The objectives of better sales through improved service to customer; reduction in inventories to reduce size of investment and reducing cost of production by smoother production operations are conflicting with each other.
(iii) The control of inventories is complex because of the many functions it performs. It should be viewed as shared responsibilities.
Answer:Advantages of Inventory Control:
Scientific inventory control provides the following benefits:
1. It improves the liquidity position of the firm by reducing unnecessary tying up of capital in excess inventories.
2. It ensures smooth production operations by maintaining reasonable stocks of materials.
3. It facilitates regular and timely supply to customers through adequate stocks of finished products.
4. It protects the firm against variations in raw materials delivery time.
5. It facilitates production scheduling, avoids shortage of materials and duplicate ordering.
6. It helps to minimise loss by obsolescence, deterioration, damage, etc.
take advantage of price fluctuations through economic lot buying when prices are low.
Limitations of Inventory Control:
(i) Efficient inventory control methods can reduce but cannot eliminate business risk.
(ii) The objectives of better sales through improved service to customer; reduction in inventories to reduce size of investment and reducing cost of production by smoother production operations are conflicting with each other.
(iii) The control of inventories is complex because of the many functions it performs. It should be viewed as shared responsibilities.