Inventory Management and It’s Costs

Introduction:

Inventory Management and It’s Costs is important for any organization operating with “Product” as their main source of offerings.

Inventory refers to the stock an organization accumulates for the Future, like using it as raw material for meeting future demands.

Inventory control helps the organization to analyze and meet the inventory cost and requirements.

Inventory control provides a clear idea of how much stock is needed in the business currently and how much should be the turnover period.
Inventory control could be different for different departments of an organization.

In the same organization, factories need to maintain the stocks of raw materials while the showroom needs to keep the inventory of finished goods produced by the factory.

Purpose of Inventories:

Consistent production irrespective of demand:

Production of the goods is a significant aspect of inventory management.

Consistent production is the requirement of the organization.

Hence it is advisable to have a regular production cycle and store the words for the appropriate time.

For Example: The Demand for heaters will only be high in the winter. The organization should produce heaters throughout the year and keep them in the stocks to reduce the burden.

Customer Satisfaction:

Customer satisfaction is one of the primary goals for an organization.

Organizations hold inventory to fulfill the need of the customer.

If the production is stopped for a shorter period, companies can satisfy the customer’s needs.

After Sales Services From the organization makes the customer feel special.

Organizations Also take care of the product if maintenance is needed to help the customer.

Environmental Risks:

The business operates in an uncertain environment.

Organizations maintain adequate amounts of inventory to battle this problem.

It helps the firm to utilize favorable conditions and to get prepared for adverse situations.

For instance, the stock of raw materials is crucial for the sudden rise in the price of the raw material inventory of finished goods is necessary to fulfill the sudden outbreak in demand for the product.

Inventory planning helps the organization to have a plan for the future.

Inventory cost:

Inventory costs are the cost associated with the order the manager makes for the number of goods.

It is one of the first costs in the level of production.

The manager has to decide the order quantity as per the requirement of the production of goods.

Decision pf order quantity depends on the analysis of four different costs associated with it.

 The Four costs are:

 Purchase Cost

 Carrying Cost

 Ordering Cost

 Stock-out Cost

 

Purchase cost:

The Purchase cost is the amount a manager is willing to spend on the unit of goods is known as purchase cost.

Purchase cost comprises two elements, one being the cost and the other being the number of quantities they want to purchase.
Purchase costs also help to determine the discount the organization can get.

A large amount of orders attracts bigger discounts.

Carrying Cost:

Carrying cost refers to the cost incurred while the stock is being stored.

These costs can also be called storage costs.

There could be two types of carrying costs:

1. The cost incurred to store the Gods like rent, lighting, staff salary, maintenance costs, insurance cost, taxes, etc.

2. The cost is the opportunity cost, the organization is leaving to get profits from the stock

For Example, interest in investments and Profits from other productive activities.

Ordering Costs:

Ordering costs all the costs incurred while purchasing the inventory.

These are the costs accompanied by the preparation of the purchase and other miscellaneous expenses like transportation, phone calls, etc.

Setup costs all the cost which occurs when the production of goods occurs within the organization.

Accounting costs are also part of the ordering costs.

Mostly, ordering costs are fixed costs and may not change with the change in order quantity.

Stock-out Costs:

These costs are also known as penalty costs, as they are associated with the delay in the delivery of the firm’s ability to deliver the product.

Organizations try to avoid stock-out costs. As this can not only hurts their revenue but can also create a Dent in their goodwill.

Marketing Strategies for the Stocks held:

Now, you have this super cool product at your store, which is good and can make a difference in the lives of your customer, but nobody is showing up to have a look at your product.
Creating an efficient market strategy will set you apart from your competition. Your marketing strategy should be something that will resonate with your business.
Marketing strategies are concise, clear, and engaging with the customers. Your brand identity will be recognized by your audience.
Advertise your product. The first thing you need to do is to find out ways to increase your product visibility.
If you are operating at the local level, apply for ads in a local newspaper.
If your advertising budget allows, hire a billboard space.
The best way to get more audience is the word of mouth!
Nothing can match this free source of advertising.
(Advertising is one of the most common marketing strategies.
There is a lot more to it, do let me know in the comment section if you want me to create a detailed post about types of marketing strategies).