What are the five purposes of inventory?

The purpose of inventory is to monitor the stocks movements as basis for daily stocks position, and levels for procurement purposes. Also it helps management on decision making when it comes on what is fast moving, slow moving and non-moving stocks . Inventory also is important if what we received or issued are accurate thru reconciliation if there variances against the records and actual inventory.

All firms keep a supply of inventory for the following reasons: 1. To maintain independence of operations 2. To meet variation in product demand. 3. To allow flexibility in production scheduling. 4. To provide a safeguard for variation in raw material delivery time. 5. To take advantage of economic purchase order size

I think 5 purpose of inventory are -

1. To maintain accuracy and current stock position.

2. To analysis product value in market and meter of flow.

3. For replacement ( reorder) product and future plan.

4. To maintain smooth operation.

5. To consume production cost.

The primary function of inventory is to use marketing and production to increase profitability, to get the maximum amount for the business' investment.

The  other functions of inventory, such as balancing supply and demand, improving efficiency, establishing a safety stock and geographical specialization.

All of those help to increase a business' profitability

I fully agree with the answers been added by EXPERTS...............Thanks.

Inventory is a Liquid assets for the company which gives  financial advantage.

it acts as a vital part to fulfill  immediate customer demand in distribution

it acts as an essential part to draft production plan & to prevent production issues.

Bulk purchase of Products leads to increase in margin each unit( economical to company)

The main five reasons which comes to mind are as under

1) Exploit the economy of scale

2) Production occurs during season and consumption happened over the year - agree product.

3) Avoid the loss of sales due to stock out

4) High responsiveness 

5) Achieving the balance between various conflicting variable like ordering cost and holding cost.

6) Acting as a buffer for time gap between production and consumption.

INVENTORY MANAGEMENT must tie together the following objectives ,to ensure that there is continuity between functions : • Company’s Strategic Goals • Sales Forecasting • Sales & Operations Planning • Production & Materials Requirement Planning.

sorry i'm not expert on this filed

Organizations carry inventory for many reasons, and all companies—even those that practice lean systems—carry inventory. In fact, organizations cannot run without a certain amount of inventory. Some reasons that organizations carry inventory are as follows:

1. Protect against stockouts—One reason for carrying inventory is that goods cannot arrive immediately when you run out of stock. A certain amount of lead time is needed for goods to be produced and delivered. You have to make sure that you have enough inventory in stock to cover demand during the period of lead time. Lead time will have a certain amount of variation, which may result from shipping delays, production problems at the supplier site, lost orders, defective materials, and numerous other problems so you have to plan to be prepared. Also, sources of supply are rarely at the same location as demand, and you cannot locate a production facility everywhere there is demand. As a result, inventory has to be transported from one location to another, and sometimes held in a distribution center to be distributed when needed at the various locations. The result is the need to carry inventory to protect against possible stockouts.

2. Maintain independence of operations—During the production process as well as the supply chain, the product is moved through many different operations that have different processing rates. The challenge is balancing different processing capabilities, and it is not always possible. Therefore, you need a cushion between operations, and inventory at different points in the system serves this purpose. Extra inventory strategically placed evens out differences in processing capability. Extra stores of inventory can be placed at various points in the supply chain network, or at work centers within a facility, to give it flexibility.

   Just consider the high interdependence of work stations on an assembly line. Inventory is typically placed between work stations to decrease their interdependence. Otherwise, work stoppage at one station may disrupt or otherwise shut down the entire assembly line. Also consider that there is natural variation in processing times between identical operations due to randomness. As a result it is desirable to create a cushion of inventory so that output can occur at a constant rate.

3. Balance supply and demand—Balancing supply on one side of the supply chain with demand on the other is always a challenge. Demand is never known with certainty and holding extra inventory enables an organization to meet unexpected surges in demand. Also, consider that demand occurs intermittently, rather than on a continuous basis. An example might be retail sales, which are slower on weekday mornings but high over the weekends. Not having extra inventory might mean missed sales. Carrying inventory helps to address these natural variations in demand.

   Seasonal demand patterns also contribute to high and low periods of demand, such as ice cream sales in the summer or snow shovel sales in the winter. It would be costly for production facilities to produce products in unison with the seasonality of demand. This might mean closed facilities and unemployed workers during low seasons, and overtime production during high seasons. A more common strategy is for companies, and their supply chains, to produce at a more uniform rate during the year. In this case extra products are stored in inventory and used during peak seasons.

4. Protect against uncertainty—Many unexpected events occur that impact both supply and demand. This is due to randomness and could be anything from a batch of damaged goods being received, to an unexpected delay due to weather, or a strike at a supplier’s plant. Companies carry extra inventory in stock to protect themselves, or buffer, against these uncertainties. This is a “just in case” scenario. However, companies know that they have to be prepared so that they don’t run out of stock.
5. Economic purchase orders—You have heard about keeping inventories low, but in this scenario inventory may be purchased in large quantities. There are a number of reasons why this might be advantageous. For example, suppliers sometimes offer price discounts to encourage customers to purchase larger quantities at one time. Similarly, buying in large quantities might result in savings associated with transporting larger quantities at one time. Also, anticipating some type of price increase, shortage, or disruption might lead companies to buy larger quantities. Purchasing larger quantities in anticipation of shortages, for example, is a common supply chain strategy.