Question

holding too much inventory can be a problem. As a future manager, discuss the pros and cons of having inventory on hand. what can a manager do to ensure he/she has the right amount of inventory on hand?

Answer 1

The pros and cons of keeping inventory on hand are discussed as below:

Pros:

-- Quicker response time: As a manager when my business has inventory on hand creates a positive customer experience. When customers would get product quickly, loyalty is built because customers know that business keeps items in stock.

-- Decreased risk of shortages: When business keeps stock on hand, it would be able to guarantee, up to a specific point, that it will not run out of a specific good, and need not to worry about if a item is discontinued

-- Quick replenishment: When we will keep inventory on hand, it would be able to work to make sure that the shelves are never empty and that thus store always has a tidy and neat appearance.

Cons:

-- Risk of inventory becoming obsolete: When the business keeps stock on hand, it's value and quality would decreases when the stock is kept for the longer duration

-- Higher storage costs: The stock on hand requires extra space for storage which means extra cost. Eventually this cost is charged from the customer with an increase in price and this might end up losing to rivals with other sellers because our price is mire compared to others

-- Higher insurance premiums: More insurance premium is paid when the stock is kept on hand

-- Tying up Cash flow: The high amount of the business’ capital is tied up when the stock is kept on hand

As a manager I am very well aware that right inventory, in the right place, at the right levels, at the right cost, and at the right time is very important. The inventory n hand can be computed with the safety stock formula. It can be computed as: (maximum lead time in days * maximum daily usage) - (average lead time in days * average daily usage)