Benefits in Sales
The maintenance of inventory also helps a finn in enhance its sales efforts. For one thing, if there are no inventories of finished goods, the level of sales will depend upon the level of current production. A firm will not be able to meet demand instantaneously. There will be a lag depending upon the production process. If the firm has inventory, actual sales will not have to depend on lengthy manufacturing processes. Thus, inventory serves to bridge the gap between current production’ and actual sales. A related aspect is that inventory serves as a competitive marketing tool to meet customer demands. A basic requirement in a firm’s competitive position is its abilit
y vis-a-vis its competitors to supply goods rapidly. If it is not able to do so, the customers are likely to switch to suppliers who can supply goods at short notice. Inventory, thus, ensures a patronage of customers. Moreover, in the case of firms having a seasonal pattern of sales, there should be a substance goods inventory prior to the peak sales season. Failure to do so may mean loss of during the peak season.
To summarise the preceding discussion relating to the objective of inventory management, the two main aspects pertain to the minimization of inv semeru in inventory, on the one hand, and the ensure that the enough inventory to meet demand such that production and sales operations are smooth. They are often in conflict with each other. By holding less inventory cost can be minimised, but there is a risk that the operations will be disturbed as the emerging demands cannot be met. On the other hand, by holding a large inventory, the chances of disruption of operations are reduced, but, the cost will increase. The appropriate level of inventory should be determined in terms of a trade off between the benefits and costs associated with maintaining inventory.