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Hello Team,
Inventory is among the more significant sources of revenue for a company. After all, inventory equals profit, so an accurate accounting of product in stock and inventory to be ordered can have a dramatic financial impact on your business. In fact, bad inventory can have a damaging effect on your organization and can affect more than just the bottom line.
Businesses track inventory so that they are able to fulfill customer orders at all time. However, many businesses also plan ahead, and when you start with a bad cache of inventory, then you can't properly plan. Moreover, if you have an unexpectedly large order -- which is great for business, financially speaking -- your bad inventory may again cost you money if you can't fulfill it.
Regards,
Saiyid
Systemic risk:
And it is defined as the risk resulting from the factors affecting the securities in general. Its impact on a particular company or a particular sector is not limited to, those factors are linked to economic, political and social conditions and there is no way to protect investors from the risks arising from them. However, the investor must know that the amount of stock held by the prospect of this kind of risks that prevail to affect all shares affected to varying degrees, usually used (beta), a measure of this kind of risk.
Risk irregular:
It risks resulting from factors related to a particular company or a particular sector, which can be exposed to the stock market. And remaining after deducting the risk of total systemic risks. Examples include occurrence of a strike in a company or a particular sector, the change in consumer tastes, the emergence of new laws affecting certain products company itself. And the investor can protect itself from these risks by diversifying its investment portfolio multiple types of stock that can not be influenced by all of them one a time limit such risks.
Second: the sources of risk
And intended dangers of investing in stocks in general, the prospects for failure to achieve the goal of profitability and exposure to loss or falling into the legitimate caveats due to the process of investing in stock, Valmkhatrh is the uncertainty of inevitability to get the yield or the size of the yield, or his time or regularity or all of these things combined . And despite the fact that investing in stocks is in economics a major tributaries to pay for the economic development process and an easy way for the development of the savings of individuals and improve their standard of living and to achieve the interests of society, but that investing in stocks generally Ihvh a variety of risks, in order to facilitate understanding of these risks will be divided into several sections as follows:
Legal risks
It is intended that kind of risk legitimate caveats that investors in the stock may be located where, either through ignorance of the ruling or indifference to those caveats in keeping behind the glamor of dividends and most important: falling into the usury risk, and the risk of falling sales in the futures Terminator them. Therefore, the investor must before investing in the stock that is known legal rulings in this area and to know what is haram Viote of these investments and what is haram them Vigtenbh.
Economic risks
Intended economic risks in general risks related to economic conditions experienced by the state, which often stock prices affect, where the stock market is affected typically In all countries the economic situation of the state, prices of stocks tend to climb normally if the economic situation is appropriate in the case of growth and recovery, and vice versa examples include:
1. The risk of economic cycles.
2. the risk of fluctuating oil prices.
3. inflated trading prices operations in the stock market risk: This type of risk if the competent authorities have not taken action and solutions appropriate to treat it and reduce it may lead to a sudden collapse of stock prices and the loss of confidence in the market, as happened in the Saudi stock market during the crisis experienced by the market in 2006.
4. The risk of liquefaction stock when needed: It means the risk of an investor's exposure to the loss of part of his money invested in the inspired protest if the liquidity at a time is not commensurate with market conditions. The investor may need cash to meet its needs have been obliged to sell the shares owned or part of it, but the liquidation of the shares owned by suddenly had him at risk of dwindling profit or lack thereof depending on the circumstances experienced by the stock market.
5. the risk of changes and fluctuations in the interest rate: It means the interest rate is generally usurious rate of increase to be paid by commercial banks to depositors or charged by their borrowers.
6. Market risk: It means the risk of losing some or all of the money invested in the stock because of what characterizes the stock volatility and fluctuation and instability often.
Political risks
It is intended that kind of risk the negative effects that local or foreign political unrest on the movement of activity in the stock market and on the direction of prices in this market, Vetotr political situation and the incidents of violence and internal strife raises usually panic and hesitation and fear of embarking on investment activities.
Psychological risks
Investors may also be exposed to the risk of another type which is intangible risks, or the so-called dangers of psychological factors that result from the behavior and expectations of the investor and the way of thinking in the market Aloshm.omn most notably the following:
1. risks of fear and greed.
2. The risk of excessive optimism and pessimism.
3. risks resulting from the beliefs and expectations of investors.
4. The risk of tension and anxiety.
Risk Management
Namely that arise due to poor management of the company or the low level of efficiency, the company's management, in some cases take the wrong decisions in the field of production, marketing or investment that will leave adverse effects on the market value of the shares of the company.
Conventional wisdom says inventory ought to be managed like cash. What this means is that companies must determine exactly how much inventory they need and stock just enough. Indeed, for the past decade, American businesses have struggled mightily to reduce inventories. In 1997, for example, the typical U.S. manufacturer held just 1.2 months’ worth of inventory in stock. That’s 20 percent less than it did in 1993 and 40 percent less than in 1990. These efforts have freed up approximately $82 billion in extra cash.
Still, while 57 percent of U.S. companies have lowered their inventories, 43 percent are carrying the same amount or even more than they did five years ago, according to a recent survey by the consulting firm KPMG Peat Marwick and the University of Tennessee. What’s the harm in overstocking? Overstocking can lead to:
Illiquidity – Ironically, the reason companies ought to manage inventories like cash is because inventory is not like cash. It’s less liquid. Tying up too much cash in raw materials, work in progress, or finished products could be detrimental to your company’s cash flow.
Markdowns – Companies that overstock must generally mark down their prices to move merchandise. For instance, fashion is constantly changing. A retailer that stocks too much of last year’s styles won’t be able to move that merchandise unless it slashes prices. Obviously, this cuts into profits. On the days immediately following Christmas, you can tell which stores overstocked inventories based on the after-Christmas sales. A store that has to slash prices 40 percent, 50 percent, even 60 percent clearly got it wrong.
Obsolescence – Overstocking is an especially dangerous proposition for technology-oriented companies. For instance, imagine you work for a computer maker that overstocked PCs that ran on Intel’s 486 micro-processing chip. Once PCs with Pentium or Pentium II chips hit the market, all of those extra computers in your warehouse became virtually worthless.
Under-stocking can be just as dangerous. If your company under-stocks its inventory, it runs the risk of:
Missing out on sales – A company cannot sell what it does not have in stock. Our example with Phil’s Grocery Store illustrates this point.
Missing out on favorable prices – On occasion, companies can secure better prices by buying sooner rather than later. For instance, starting in 1994, coffee companies that didn’t build up their inventories paid for it dearly as coffee prices soared more than doubling in the subsequent three years. In some cases, having just enough inventory is tantamount to having too little.
Missing out on discounts – Often, companies that buy raw materials, component parts, or finished products in large quantities can secure discounts from their suppliers. Companies that stock too little or even just enough of these goods run the risk of missing out on these price breaks. Also, companies that place large orders infrequently, rather than small orders frequently, can reduce shipping and clerical costs.
Losing consumer loyalty – If your company consistently under-stocks what customers want, it runs the risk of losing their future business.
While just-in-time inventory control helps companies maintain their liquidity, some companies that have used it have been burned. For instance, newspaper companies that purchased newsprint back in 1993 on a just-in-time basis saw prices more than double over the course of the next two years. Therefore, by stocking just enough inventories, they were forced to buy newsprint at higher costs. It’s also a problem if something ”takes off”, as when Oprah announces her book club selection.
Pros to holding excess inventory
1) Quicker response time
You are able to easily and quickly fill all customer orders as soon as they come in, without having to worry about waiting on your stock to come in to ship their order out. Customers can be lost if you can’t ship an order quickly.
2) Decreased risk of shortages
By keeping stock on hand, you are able to guarantee, up to a certain point, that you will not run out of a particular item, and you have less to worry about if a product is discontinued. Should there be a shift in the demand for your product, you are more able to meet (or even beat) the competition; you will be more likely to be able to sell your excess inventory at an ideal price.
3) Quick replenishment
By keeping excess inventory, you are able to work to make sure that your shelves are always full, and that your store always has a neat and tidy appearance.
Cons of holding excess inventory
1) Tying up Cash flow
The more inventory you have on hand, the greater the amount of the business’ capital is tied up. You will risk slowing down your business’ cash flow.
2) Risk of inventory becoming obsolete
The value and quality of your product decreases the longer you keep it on stock. You have to make it a priority to sell your inventory while they’re new to the market. Smart phones, for example, are updated almost every six months, so you have to sell your stock before new versions arrive. You might end up having to sell them at a smaller price because it has become outdated or obsolete. Similarly, if you are selling perishable goods, you would have to sell them at a much lower price the nearer it gets to its expiration date. You would potentially lose money on the item if it must be sold below cost in order to clear it out.
3) Risk of item not selling
By keeping excess inventory on hand, it’s possible that you have misjudged what will and what will not sell, and in doing so, you could end up with a large quantity of items on hand that people do not wish to purchase. Again, you might have to sell at a steep discount, or sell below cost to move the inventory out of your warehouse.
4) Higher storage costs
Excess inventory means extra space needed for storage. Extra space also means extra costs, and since you have to include those extra costs in your price, you might end up losing to competition with other sellers because your price is too high. Even if you have your own warehouse, you would still be having extra costs in maintenance, and you also risk not having enough space for new items.
5) Risk of natural disasters
Any type of stock is always at a risk of being destroyed or damaged by fires, floods, or other natural disasters. Having less of it in excess, however, would incur smaller losses should these natural disasters happen.
6) Higher insurance premiums
The more inventory you keep and the longer you keep it, the more insurance you pay on it.
While it is true that there are different ways to get around many of the cons on the list, it is important to keep in mind these very real issues that present themselves when dealing with keeping excess inventory on hand.
In many cases, you will probably find that keeping additional inventory in stock is a good thing. You have probably found that having enough of a hot-selling product is a constant problem. Rather than come up short when a customer is eager to buy, it is wise to keep a few more in the back, in reserve so that your shelves are never empty (which doesn’t look good for any retailer).
One way to to help ensure that you always have a good balance of inventory is to use software specifically designed to manage item based businesses. For example, inFlow Inventory will alert you when your stock hits a certain point and allows you to create a purchase order with a few clicks.
inventory is nothing but money if you hold excess inventory you are wasting your money
