Inventory Management Flashcards
Why is Inventory Management important?
It is important for an organisation to consider what level of inventory they are able to hold on their premises. They want to avoid both understocking and overstocking.
What is Understocking?
When an organisation holds an insufficient amount of inventory to be able to carry out production/fulfil orders.
What are the Consequences of Understocking?
The organisation may be unable to continue with production.
The organisation is paying for workers who are not being productive.
The organisation may be unable to accept an unexpected large order.
Continually ordering new inventory can increase administration costs.
Missing out on bulk buying discounts as not purchasing in large quantities.
What is Overstocking?
When an organisation holds more inventory than it can use/sell.
What are the Consequences of Overstocking?
More storage space is required to hold the inventory.
Higher chance of theft from the warehouse/store.
Goods may deteriorate before they are used/sold.
Goods could become obsolete (no longer needed by the market).
Higher storage/insurance/security costs.
Money is tied up in the inventory that has been purchased.
