Importance of Inventory Management in Logistics - Desklib

Running Head: Fundamentals of Logistics
Fundamentals of Logistics
Essay
System04104
8/9/2018

Fundamentals of Logistics
1
Need of Inventory
Inventory is an important aspect that every organisation would have to maintain for
different purposes. Every organisation wants to maintain an optimum level of inventory
despite the fact that a little carelessness can result in a huge loss for the organisation. Over
inventory or under inventory both are risky for the organisation and impact its financial
health as well as adversely affect the business opportunities if the inventory planner does not
manage it properly. There are various purposes behind keeping inventory in the organisation
despite the risk, such as hedge against the various internal or external factors, as a precaution,
as an opportunity or as a need (Wild, 2017). Sometimes it might be because of speculative
purposes. Most of the organisation prefers Just in Time (JIT) technique to deliver the product
to its customer. In such types of the organisation, the inventory warehouse is attached with
the production house where raw materials and packaging items are stored and issued to the
customer on the JIT basis (Schultz, 2017). Normally, the organisations keep inventories to
meet the fluctuated demand of customers on time. There are some other reasons for keeping
inventory in the organisation despite ignoring risk associated to it:
Meet variation in Product Demand: The production plan changes according to the
demand of customers, stocking patterns, estimates, and orders. Accordingly, the organisation
has to change its demand for raw material as per change in the production plan in terms of
specific SKU or batch qualities.
Meet seasonal demands: The demand and supply are very much depended upon the
various factors like season, festivals etc. and it is based on the past sales data which helps
companies to predict or estimate the massive change in demand in advance. Accordingly, the
organisation stock up raw material and hold finished Goods inventories to meet the certain
change in demand of a particular product and be ready for mass production to meet the
increased demand (de Kok, 2018).
Economies of Scale in Procurement: Buying raw material on a larger scale save cost
and cheaper for the organisation rather than buying a small lot of raw material. In such cases,
the company wants to buy in bulk size and holds it as inventory in the warehouse (XU &
Rey, 2017).