Academic Master

Human Resource And Management

Alternatives To Holding Inventories

Inventory is a list of items such as properties in store, assets, or the matters of a building. In a company’s balance sheet, inventories are the largest item within the current asset class. For this reason, the value of inventories has to be precisely calculated and valued at the end of every bookkeeping period in order to define the company’s revenue level. This paper shall, therefore, discuss the various alternatives to holding inventories.

Holding inventories refers to the process of storing the inventory that remains unsold. Hence, the main purpose of holding inventory is to help the company avoid fluctuations in the process of demand and supply that affect production or sales. The other purpose is that it can also be used as a transitory counterbalance in order to delay the effects of an upsurge in prices. This consequently improves the margins and sales (Wang et al., 2014, P.1229). The holding of inventories at times has both benefits and disadvantages, but it is important to note that the disadvantages of inventory holding outweigh the advantages, and this is because of substantial costs. One of the major concerns of most companies that hold large amounts of stock is the issue of storage capacity and fees. Businesses make large losses by paying labor to take care of the transportation of stock, organization of stock, and management of storage space. Businesses that hire storage space lose extra profit by paying rent to store the unused stock. Also, in the case of perishable goods, holding these goods may result in items overstaying even past their “Best before” dates (Tayal et al., P.69). Hence, in case these goods are held for a long period of time until they expire, they obviously have to be disposed of, thus meaning that they are an entire loss.

Lastly, businesses that attempt to keep up to date with the buying trends may find that the excess holding of inventory is disadvantageous. Since customer’s tastes and preferences change quickly, the products become outdated if they stay in stock for a long time. Thus, a storage compartment filled with trendy goods can easily become a storage unit full of devaluated stock.

Inventory management may also be seen as a balancing act because it ensures that the stock of any business is not in excess or in deficit. There exist various alternatives to holding inventories, and some of them are discussed below.

Drop Shipping

Rather than employing the use of traditional methods like “Just in time management” that depend on precise forecasting, the company might turn to a more convenient form of controlling inventories. Through the use of drop shipping, there is no longer any need to ship or store items, and this, therefore, reduces costs and saves time (Axsäter, 2015, n.p). Thus, once an order is made, the whole seller or vendor is informed, and they can handle the task. One of the benefits of this method is that it reduces the costs involved in paying rent on warehouses and the cost of paying staff to organize and maintain the stored stock.

Setting Par Level

Stock management is made easier by setting par levels for every product. Par level refers to the least amount of stock that has to be on hand every time. Hence, whenever the inventory falls below the set minimum, this implies that it is time to order more. Setting minimum levels of required stock helps to reduce cases of inventory holding. This is because the business only orders what is sufficient at that particular moment. This minimizes wastage in the case of perishable goods and also reduces the costs involved in holding inventory.

In conclusion, all businesses must ensure that they have appropriate ways of handling inventories. Since the main aim of any business is to make profits, it must ensure that it cuts all costs completely. One of the most common forms of cost that all organizations need to eliminate is inventory holding costs. If these costs are reduced, the business shall be able to make more profit due to efficient sales.

Bibliography

Tayal, S., Singh, S. and Sharma, R., 2015. An inventory model for deteriorating items with seasonal products and an option of an alternative market. Uncertain Supply Chain Management3(1), pp.69-86.

Axsäter, S., 2015. Inventory control (Vol. 225). Springer.

Wang, H., Liang, X., Sethi, S. and Yan, H., 2014. Inventory commitment and prioritized backlogging clearance with alternative delivery lead times. Production and Operations Management23(7), pp.1227-1242.

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