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By far the greatest adversary any inventory manager is expected to overcome is fluctuating consumer demand. A business’s priority should always be being able to meet its customer service targets. This means being able to supply its customers with the goods and services they want exactly when they want them. A good inventory management software system, that keeps track of inventory in real-time, is a must for businesses seeking to ensure that their inventory levels are up to the task of meeting unanticipated surges in demand.
Typically, most seasonally affected businesses will choose to hold more inventory during peak seasons or event periods – such as during summer or for Christmas, Halloween or Valentine’s day.
In order to meet seasonal demand many industries – particularly the fashion industry – require purchase orders to be placed months in advance. So for example, a business looking to stock its inventory for the coming winter seasons will need to order its goose down coats up to eight months in advance.
From time to time manufacturers or suppliers will offer massive closeout or spot offers with highly attractive discounts. Lower buying costs for the business amounts to lower selling costs to customers. This pulls in and wins over new customers, as well as offers the business a distinct competitive edge.
In order to be able to capitalize on low cost offers however, a business must have the necessary working capital available. The amount of working capital available to the purchasing department is directly linked to the amount of current inventory on stock.
Consumer demand is not the only factor that fluctuates. The market price of goods is also susceptible to a complex array of variables – some predictable, others not. This degree of uncertainty in the market value of inventory is what leads businesses to hedge their risk against sudden price increases in the market.
It is a risky strategy because it could very easily leave a business holding unnecessary levels of inventory – thereby raising holding costs – in a hedge against possible price increases in the future. But if the market actually drops and the value of goods plummets, businesses holding inventory hedged against price increases will lose a lot of money in a very short space of time.
inventory is link between production and consumation of material.
* To avoid shortage effect.
* To avoid future prices problems.
* Irregular or seasonal demand
* For promotion to get goodwill and greater customer
The reply given by Billy Blasto Okoth Olick is very pertinent and covers almost all factors.
