Question

how can i caculate how a company has managed its inventory and why is managing invetory a challenge for firms.

Answer 1

The company can know how efficient the business has used its inventory by dividing the net sales by its inventory. It provides the inventory turnover ratio, depicting how efficient the company has used its inventory. The figure provides how many times you have turned over, or sold, your inventory. The main challenges that a company faces in managing its inventory includes:

-- Lack of knowing the inventory: The lack of visibility has serious impact on supply chains. Breaking down the inventory into replenishment stock, safety stock, and normal stock is vital to ensure adequate levels for each of them.

-- Inefficient Processes: Their ability to achieve efficiency in maintaining the inventory depends on a number of factors such as tight budgets

-- Customer Demand: The demand of customers is changing constantly and now they are need to be more flexible with their orders. The company must know the needs of customer and assure that the demands are met while still managing the inventory to appropriately match up with those requirements

-- Increasing Competition: With expansion the competition also increases and it is vital to match up with the material costs, lower labor costs, and low currency values