created to pursuc President EXHIBIT 10.2 Potential Conflicting Objectives and Pr
ID: 345227 • Letter: C
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created to pursuc President EXHIBIT 10.2 Potential Conflicting Objectives and Priorities Manufacturi Finance and Accounting ng Marketing Communications and data processing Production and supply alternatives Responsibilities Distribution channels Warehousing Carrying inventory Customer service Transportation Inventory obsolescence More inventory Frequent short runs Less inventory Objectives Long production runs Fast order processing + Cheap order processing Lowest routing cost delivery Fast Field warehousing Less warehousing Plant warehousingExplanation / Answer
Inventory is defined as the available raw material, work in progress and finished products waiting to be shipped. Keeping right amount of inventory is very critical to the cost effectiveness and at the same time, maintaining service levels for a company. The question, "More or Less inventory" arises because of the conflicting nature of the priorities.
Inventory consumes resources. Storage has a cost. So has the insurance and handling charges. More so, some commodities have specific requirements like air conditioning. All this adds to the cost of handling on daily basis. On the other hand, inventory can't be done with. One needs to keep a buffer stock in the face of uncertainty of business environment to keep the production running, customers satisfied and avoiding the events of stock out and its consequences. Another cause of keeping the inventory is to optimize the ordering costs, where too frequent orders also add up to the costs in form of a fixed cost that incurs every time an order is placed.
Therefore, more or less inventory depends on many factors like uncertainty of demand and supply, fixed ordering costs, inventory holding costs, lead time of supply, nature of commodity, risks associated with the products ( obsolecence etc.) and other factors specific to the case.
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