Inventory Costs – A first class service to clients often requires immediate delivery and, hence a higher level of inventory at the market centre. Economy, on the other hand, calls for minimum inventory. The level of output held in stock is dictated by-
a) Transit time: If the time lapse between production and sale is longer, the level of inventory becomes higher.
b) Sales pattern: If the pattern of sales is erratic, higher inventory levels are caused.
c) Production pattern: If the production pattern is erratic, higher inventory levels have to be maintained to prevent stock –outs.
Assuming that the sales and production patterns are largely fixed, the important variable, which can influence stock, levels in transit time. As transit time is reduced, the level of static stock can be reduced with accompanying stock reduction.
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