Lakhasly

Factors Affecting Inventory Levels:

1. 
   

   To Prevent Loss of Orders (Sales): Meeting delivery schedules at a 100% service level is crucial in a competitive environment to avoid missing schedules and potential sales loss, necessitating inventory maintenance.

   
   


2. 
   

   Adapting to Changing Market Conditions: Anticipating market sentiment changes and stocking materials to mitigate non-availability or price spikes is essential for organizational agility.

   
   


3. 
   

   Other Reasons for Stocking Materials: Organizations may need to stock materials due to supplier conditions, seasonal availability, or sudden price fluctuations.

   
   

Factors Influencing Inventory Levels:

1. 
   

   Nature of Business: Inventory levels vary based on whether the business is retail, wholesale, manufacturing, or trading.

   
   


2. 
   

   Inventory Turnover: The frequency and volume of inventory sales directly impact inventory levels.

   
   


3. 
   

   Nature of Product: Whether products are perishable or durable affects inventory management strategies.

   
   


4. 
   

   Economies of Production: Scale of production influences inventory levels to optimize production efficiencies.

   
   


5. 
   

   Inventory Costs: Balancing inventory levels with associated costs, including purchase, ordering, and holding costs, is crucial.

   
   


6. 
   

   Financial Position: Inventory management aligns with the financial capacity and credit terms of the business.

   
   


7. 
   

   Operating Cycle Period: Inventory levels should match working capital requirements and operating cycle duration.

   
   


8. 
   

   Management Attitude: Top management's philosophy influences inventory policies, whether supporting zero inventory or maintaining high levels.

   
   

Results of Inadequate Inventory Control:

Inadequate control leads to:

1. 
   Understocking: Resulting in missed deliveries, lost sales, dissatisfied customers, and production bottlenecks, impacting profits.


2. 
   Increased Holding Costs: Financial strain due to unnecessary investment and reduced liquidity.


3. 
   Deterioration in Inventory: Risks of inventory obsolescence and deterioration.

Requirements for Effective Inventory Management:

Effective management necessitates:

1. A tracking system for on-hand and on-order inventory.


2. Reliable demand forecasting, including error indications.


3. Knowledge of lead times and variability.


4. Estimates of holding, ordering, and shortage costs.


5. Inventory item classification system.

Inventory Control Techniques:

Depending on the business type, inventory control techniques include:

• Just-in-Time (JIT) systems


• Economic Order Quantity (EOQ) models


• ABC analysis for inventory categorization.