subject: What Are the Factors that Affect Inventory? [print this page] Often it is said that by avoiding process, design, operational and management problems, inventory can be avoided but it is not always so. These are some basic reasons for the growth of inventory which is not at all desirable by any firm. But there are many more factors which can lead to the growth of inventory and they need to be dealt with to avoid losses in the future. Some factors have long term impact on inventories so it is imperative to recognize them first and then deal with them. Until and unless you identify the problems you can fight them and prevent inventories going up. Why Is It Necessary to Remove Inventory? Inventory can have a serious effect on the progress of your company so it is feasible to identify the factors affecting inventory in order to fight the enemies. The inventories cannot be considered a non- issue for they can lead to many extra costs some of which are even hidden costs. Once the company is under the burdens of these costs it will become less profitable and less competitive. The inventories are bound to burden the owner with additional liabilities which are not desirable. Often the manufacturers and distributers take a lot of time to realize the ill effect of inventory on their company and by the time they get overburdened by it, they are not left with too many ways of fighting it. What Are the Major Reasons for Inventory? Demand which is acquired from the customers can be a source of inventory. Billing which is a paperwork operation can lead to increase in the rate of inventory. Scrap, rework etc has often led to the growth in inventory in a company. Inventory is often considered to be a buffer which is required due to many uncertainties. Inventory is often considered to be the safety stock but it leads to problems like hampering the profit possibilities of the company. This buffer is often planned and manufactured by the company itself and is known as anticipatory inventory needed to face fluctuations and uncertainties. Often there are speculations of and expectations of price rise of commodities making manufacturers enter into producing inventory. More Reasons for Inventory Inadequate and faulty designing can largely lead to increase in the inventory. If the firm is scattered with a number of departments which are not properly connected and managed it can give rise to inventory. This is so because there can be many discrepancies with regard to the control of the production, proper utilization of services, space. It is very important to have competent people around who can effectively manage the supply and demand factors. Proper management of demand and supply, data integrity is very important and it can be done by providing the employees with training on management.
