Well, you might say a business need to stockpile a lot of inventory. However, if you have never managed an inventory-based business you will never know what it takes to stockpile a lot of inventory. You need a lot of money to stock file large quantities of items you are selling, and you need to spend a lot of money on warehouse rent as well as security.
How Much Inventory Should You Stack?
- Thread starter nomad
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I think no matter the product, one should only stockpile the level of inventory that can be sold out in a week. Consider that inventory is likely to get damaged and shelf life reduces as it stays in the warehouse.
The amount of inventory that you have to stack or the minimum amount of inventory in the warehouse, you need one of the inventory recording methods such as lifo, fifo, fefo and avarage method. Next you need to determine the Safety Stock, then you need to determine the Reorder point.
This is kind of Situations experienced by the wholesaler who have to deal with inventory of large scale of commodities. A businessman who is financially handicapped cannot venture in it because it is capital intensive project. Managing the inventory is most challenging.
When we study inventory, what we learn is only the method and method of calculation and it has been applied almost all over the world, especially those that adhere to the GAAP accounting system, so it doesn't matter to big or small companies, also for tax calculations.
It's always advisable to keep at least few days inventory depending on the type of business they are involved in. In industries they try to keep few hours inventory as they ask vendors to supply raw material directly on line.
It is not every time companies would be required to keep av fewsv days inventory. It depends upon the size of that companies and the nature of the inventory stocks.
Yes it depends on many factors like the location of the company, type of process, nature of product and various other things. In my company the norms are 3 months also for raw material because there are lots of parts which are imported from other countries and it takes time to reach here.
Yes. This is a good suggestions. There are a many factors to be considered before certain decisions must be taken. Inventory are not just stocks to be dispensed anyhow without following certain principles.
I have always held the view that it is totally unnecessary for a business to stockpile a larger than necessary amount of inventory at any particular time.
However, I guess certain businesspersons ignore this principle based on the idea that the mere sight of a large inventory is some sort of status symbol.
If the product that you are into selling is something that moves very fast, I believe that it is considerate for you to have a lot of money invested in stocking up a lot of them because you have high chances of clearing the products in sales and making more profit.
Inventory is money for a business person. He/she try to minimise it at all levels. In my previous company my boss use to be very conscious about inventory he always try to minimise it and want to increas profit margins by adopting methods to reduce inventory
If you have a strong relationship with suppliers, you can leverage on that to use the Just In Time Inventory management where suppliers make supplies of inventory for you just at anytime you need it.
For some goods, that might work, like perishable items. For items like clothing, jewelry, and drugs, you'll need more than that.
The cost of purchasing such items weekly won't be sustainable for a business.
