Chapter 12, Problem 1DRQ

What are the primary reasons for holding inventory?

Summary Introduction

To determine: The primary reasons for holding inventory.

Introduction: Inventory is a stock or store of goods. Every company store lots of goods as inventory which will be used during replenishment periods. Management of inventory is so much essential to manage cost and also to reduce cost.

Explanation of Solution

Primary reasons for holding inventory:

Stocks are held for various reasons by many organizations. However techniques like JIT, lean manufacturing are used, and few company rely on inventory. The primary reasons for holding inventory are,

• To meet the customer demand,
• To compensate production requirements,
• To decouple operations,
• To reduce the risks of stock outs,
• To hedge against price hikes,
• To permit operations,
• To take edge over order cycles and
• To take gain over quantity discounts.