Smoothing Requirements Of Inventory

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Sometimes inventory is used to smooth demand requirements in a market where demand is somewhat erratic.

 

There are three basic reasons for keeping an inventory:

Time – The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this “lead time”

 

Uncertainty – Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods.

 

Economies of scale – Ideal condition of “one unit at a time at a place where user needs it, when he needs it” principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement and storing brings in economies of scale, thus inventory.

 

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