10.11 Reducing inventory levels

Question 1

What costs are associated with holding inventory?

Answer 1

Purchasing goods, storage fees, insurance, payment of staff to manage goods

Question 2

What is the idea behind inventory management?

Answer 2

Ensuring the the company has sufficient inventory to meet demands, but not too much so as to become a burden.

Question 3

What are the advantages of reducing inventory level?

Answer 3

• reduced costs
• frees cash tied in inventories
• reduced risk of deterioration or theft

Question 4

What are the disadvantages of reducing inventory level?

Answer 4

• risk of stock-out
• higher risk of loss of production time
• cannot offer bulk purchase discounts