Importance of Inventory

Applied Logistics

Assignment 1a: Hand in paper 500 words about importance inventory.

There are several reasons why inventory is important for Logistics. To start with the main reason; Inventory is needed to gain profit and to make a ‘weighing’ between the demand and the cost of inventory. Also, inventories should be considered as investments. Carrying cost for inventories can be significant; the return on investment to a firm for its funds tied up in inventory should be as high as the return it can obtain from other, equally risky used of the same funds.

Inventories are needed to operate an entirely business. Retail and wholesale businesses must carry an inventory, but there are also other businesses who can succeed with little or not at all inventory. Those businesses can be placed by services and sales.

Retail businesses must carry inventories to operate sufficient enough and to prevent being bankrupt. Retailers try to turn over their inventory up to 6 times per year and a successful retail operation turns their inventory 4 times per year.

Wholesale businesses have the obligation to carry a large inventory to service their customers. Wholesalers supply most often retail stores, service businesses such as plumbers and printers, electricians and auto mechanics. Where the demand is high, they are there to supply the order.

There are some services and manufacturing businesses, who operate with an unique system, so called: Just-in-Time inventory system. They work with this kind of system, just to avoid the costs of carrying a large inventory and also to prevent the full crowded space in the warehousing facilities. In order to do so, they order inventory on a daily, weekly or even a monthly basis as per their production schedule.

If businesses carry a large inventory, there are costs associated. For example, there are many businesses, which purchase their inventory on credit and must pay interest on the purchases. If unsold inventory piles up, it...