Question

Describe the characteristics of the manufacturing inventories and distribution inventories from the perspective of the manufacturing industry.

Answer 1

Manufacturing inventory refers to the material or supplies a company has in hand in order to use in production of products. Manufacturing is basically the process of acquiring raw materials, using them in production of finished goods and henceforth sent for sale to clients, resellers or consumers. Production inventory is used for valuation of raw materials intended for the manufacturing process. Two methods are used for the captioned system: one method is First in First out i.e  the raw material which have first entered the production floor will be used first; and another is Last in First out i.e raw materials recently recieved are accounted first for the production. LIFO helps in lowering the tax burden during the period of inflation. Manufacturing inventory is an important process to be considered for integral and careful strategy. Manufacturers usually want to produce ideal volume of finished goods and maintain quite a proportion of inventory so as to sell immediately when in emergency with no excuses. Companies engage in inventory when there is low cost raw material to take benefit of cost effective production. It is vital to inspect quality of raw material , work in progress material and finished goods so that it doesn't hamper the overall production. Before these manufacturing processes, quality control inspections are held to knock out the defects. Manufacturing inventory is necessary to maintain a strong brand name by preventing defective materials and provides a complete picture of company's position. For a company to be entirely profitable and productive, the list of inventory should be vastly updated so that it conforms to current and projected production needs.

Distribution inventory is defined as an inventory or the products, which are to be supplied to resellers, retailers and distributors, are divided into multiple freights , each one is used to achieve inventory requisites. Distribution inventory helps the company to organize supply chain, valuable relationships with suppliers and safeguarding inventory among various other things. The manager monitors the level of inventory and analyse the need to generate  transfer orders and set up reorder points to futher prevent inventory imbalance. But in whole of this process, a company should be able to choose promising suppliers and maintain useful relationships. An efficient distribution inventory enables the company to view reorder points, stock levels and turnover ratios at perfectly competitive levels. It helps in minimising overall transportation costs, distribution and inventory carrying costs thereby maximising revenues and sale levels. It enables the product to reach out to every region where it has to be sold.

It helps to strengthen the operations independently

Helps to handle fluctuation in product demand so to fulfill the requirements

Offers flexibility in production scheduling

Manage deviations in raw material delivery