Why do you need to manage inventory?

• Inventories or stock are normally a component of current assets for most entities involved in manufacturing or the sale of goods
• Types of inventories
• Raw materials
• Work in progress (WIP)
• Finished goods

Benefits of holding inventories

• Sales are made and profits gained
• Cross-sales are made and profits gained
  e.g lotto and card sales in a newsagency
• Goodwill built up
• No-stock costs are avoided

Costs of holding inventories

• Ordering costs 
• compounded if a large number of small orders
• Holding costs 
• Storage and display costs
• Insurance costs
• Deterioration and obsolescence
• Wholesale price changes
• Theft
• Financing costs

How do you manage inventory?

1. Maintaining a minimum level of stock

• Either explicit or implicit level

2. Average inventory turnover period (ITP)

• Manages can decide on a number of days of inventory to be held as optimum for the firm