Vagaries in the Availability of Raw Material Homework Help

Vagaries in the Availability of Raw Material

The availability or otherwise of certain raw materials on a continuous basis without interruption would sometimes affect the requirement of working capital. There may be some materials which cannot be procured easily either because of their sources are few or they are irregular. To sustain smooth production, therefore, the firm might be compelled to purchase and stock them far in excess of genuine production needs. This will result in an excessive inventory of such materials. The procurement of some essential raw materials is difficult because of their sporadic supply. This happens very often with raw materials which are in short supply and are controlled to ensure equitable distribution. The buyer has in such cases very limited options as to the quantum and timing of procurement. It may so happen that a bulk consignment may be available but the firm may be short of funds, while when surplus funds are available the commodities may be in short supply element of uncertainty would lead to a relatively high level of working capital. Finally, some raw materials may he available only during certain seasons. They would have to be necessarily obtained. when available, to provide for a period when supplies are lean. This will cause seasonal fluctuations in working capital requirements.

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