The twin objectives of inventory management are operational and financial. The operational objective means that the materials and spares would be available in sufficient quantity on time so that work is not disrupted for want of inventory. The financial objective means that investment in inventories should not remain idle and minimum amount of capital should be locked in inventories. The objectives of inventory management are summarized as follows:
Operating Objectives
1) to ensure continuous supply of materials
2) to ensure uninterrupted production
3) to minimize risks and losses
4) to ensure better customer service
5) to avoiding stock out danger.
Financial Objectives
1) to minimize investment
2) to minimize inventory related costs and
3) to ensure economy in purchasing
Factors Affecting Level of Inventory
As stated in the previous sections the firm should maintain its inventory at reasonable
level. The quantum of inventory depends upon several factors, some of the important
factors are mentioned below:
Nature of Business
Inventory Turnover
Nature and Type of Product
Market Structure
Economies of Production
Inventory Costs
Financial Position
Period of Operating Cycle
Attitude of Management
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