For example, organizations in the U. Other countries often have similar arrangements but with their own accounting standards and national agencies instead. A discussion of inventory from standard and Theory of Constraints -based throughput cost accounting perspective follows some examples and a discussion of inventory from a financial accounting perspective. Whereas in the past most enterprises ran simple, one-process factories, such enterprises are quite probably in the minority in the 21st century.
A company has various motives for holding the inventory as stated below: The Company may be required to hold the inventory in order to facilitate the smooth and uninterrupted production and sale operations. It may not be possible for the company to procure the raw material whenever necessary.
There may be a time lag between the demand for the material and its supply. Hence it is needed to hold the raw material inventory.
Similarly it may not be possible to produce the goods immediately after they are demanded by the customers. Hence it is needed to hold the finished goods inventory. They need to hold work in progress may arise due to production cycle.
In addition to the requirement to hold the inventory for routine transactions, the company may like hold them to guard against risk of unpredictable changes in demand and supply forces. The supply of raw material may get delayed due to factors like strike, transport, disruption, short supply, lengthy processes involved in import of raw material etc.
Similarly, the demand for finished goods may suddenly increases especially in case of seasonal type of products and if the company is unable to supply them, it may mean gain of competition.
Hence, company will like to maintain sufficient supply of finished goods. The Company may like to purchase and stock the inventory in the quantity which is more than needed for production and sales purpose.
This may be with the intention to get advantage in term of quantity discounts connected with bulk purchasing or anticipating price rise.Depending on the reason for holding inventory, inventories are given different names: pipeline inventory, seasonal inventory, cycle inventory, decoupling inventory/ buffers, and safety inventory.
It should be noted that these ﬁve reasons are not necessarily mutually exclusive and that, in practice, there typically exist more than one reason. Jun 28, · Excess inventory is a liability because it ties up cash that you may need for more urgent concerns.
In addition, demand can shift, making accumulated inventory obsolete, and . What can be a company’s motive for holding the inventory? A company has various motives for holding the inventory as stated below: 1) Transaction Motive: The Company may be required to hold the inventory in order to facilitate the smooth and uninterrupted production and sale operations.
It may not be possible for the company to procure the raw material whenever necessary. Jul 04, · There are five major reasons for holding inventory: (1) Pipeline inventory A pipeline inventory is the minimum inventory an organisation needs in order to function.
Inventory (American English) or stock (British English) is the goods and materials that a business holds for the ultimate goal of resale (or repair).. Inventory management is a discipline primarily about specifying the shape and placement of stocked goods. It is required at different locations within a facility or within many locations of a supply network to precede the regular and planned. This newsletter provides my version of the Top Ten Reasons for Too Much Inventory. Unlike David Letterman’s lists, this one will include at least one idea that you can use today to improve your company’s inventory performance. SSM 50 – REASONS FOR HOLDING STOCK This course focuses more on the actual operations of stock management and how to use the available resources in the most efficient manners.
a producer of wine that needs to age for two years in order to be sold needs a minimum inventory of wine for two years in order to exist. (2). Reasons for holding inventories Atrill, McLaney, Harvey and Jenner () identify four key reasons why companies hold inventories: Firstly, companies ‘stockpile’ their goods to avoid the effect shortages might have on customer good will.
This newsletter provides my version of the Top Ten Reasons for Too Much Inventory. Unlike David Letterman’s lists, this one will include at least one idea that you can use today to improve your company’s inventory performance.