Holding Stock Case Study

1. Reasons for holding stocks

The major reasons for carrying stocks can be concluded as below:

1.1. To keep down productions costs – it is generally expensive to fix machines, so production runs need to be as long as possible to attain low unit costs. It is essential, however, to offset these costs with the costs of holding stock.

1.2. To accommodate variations in demand – the demand for a product is never entirely ordinary so it will differ in the short term, by season, etc. To avoid stock-outs, hence, some level of inventory should be carried.

1.3. To take account of variable supply (lead) times – extra safety stock is carried to tackle any delivery delays from suppliers.

1.4. Buying costs –it is necessary to carry extra stock to reduce the

Products grouped as finished goods can be defined as purchased items, assemblies, or repair parts whose demand originates from a consumer order or sales forecast.

v) General Stores – refer to a mixture of products employed to support a given operation. vi) Spare Parts – refer to a special group due to the nature of the stock. These give a critical back-up to machinery or plant where any breakdown might be vital.

3. Functions of Inventory

The elementary function of inventory is to act as a buffer that separates the company from the discontinuousness of consumer demand on the one hand and limitations in vendor delivery capacities on the other. Generally, distributors hold as little inventory as possible, preferring to move purchase order receipts directly to the shipping dock just-in-time with consumer orders. Actuality, the company needs inventory to buffer it from the uncertainties of supply and demand.

3.1 Five functional inventories

There are five functional inventories in the distribution environment including cycle stock (or lot-size) inventories, safety stock, anticipation inventories, transportation inventories, and hedge (or speculative) inventories. Their functions are as