STUDENTS' CORNER - 218

Inventory is asset to the company because all the materials taken into account for inventory do cost the company.  In fact, all the business-related activity demands attention lest you face some unforeseen challenges in the process of marketing your product.  Inventory forms the basis of supply and production of the products. Of course, experts talk of different types of inventory such as Raw materials,  Work in Progress, Finished products, MRO. There does not seem to be some universally definite number of types; that is, some talk of 5 or 7 and even 11 types of inventory. The number as such does not matter; all that matters is your sense of what is called ‘Order Point’.

The Order Point suggests the time has come for you to order the materials you need either to sell or to use them in the process of production of your products. If you delay the purchase, there is the possibility the production of the company’s products will suffer leading to what is called supply chain disruption.

 Inventory makes the business go on uninterrupted; particularly, if your inventory consists of finished products, and you have not adequate products on shelves for your customers to visit and choose, you have in the end displeased customers. We know customers are real assets for us in the sense that they are the source of the revenue for the company. Perhaps you remember the port congestion drove the US shopkeepers into frenzy particularly for the Christmas holidays business. In fact, even the US President Biden had to order the US ports to work extra to ease ports congestion so that the ships need not wait long for unloading the goods. OK it is a different story and let us not go into it. The point here is if the inventory is inadequate, it will negatively impact the business. The Order point demands that you have a right sense of balance between under-stocking and over-stocking.

 Under stocking might lead to supply chain disruptions; that is, there is the possibility of the inexcusable folly of tending to lose the customers exiting the company frustrated because they did not get what they wanted and what they used to get without fail; a dissatisfied customer is a potential danger to the company in the sense his words to prospective customers to the company might discourage him and place a greater distance between the company and the prospective customer.

Over-stocking is really a waste of the precious capital and it reflects absence of dynamic marketing sense. Continuous over-stocking may lead to irremediable loss to the company, indirectly forcing it to cease to be. 

Both kinds of stocking in inventory must be avoided; and definitely, the over-stocking.  The astute business sense will have a meaning balance between running out of stock and a waste pile of stocks.

We will see some more facts about inventory in our next. Let us take the opportunity to wish you a very happy and prosperous new year, 2022.