STUDENTS' CORNER - 102

Inventory Reduction is another predominant objective of the logistics.

Inventory refers to a collection of products, materials and even unfinished goods, stored in a warehouse for further commercial activities. It also has another equally if not more important dimension: it is an accounting term.  Let us see how it is critically connected with the accounts of the company.

To stock materials in a warehouse is to have invested in the purchase of raw materials, in getting them converted into finished products through employees and also keeping incomplete products for further activities.  The company has put in a lot of money in the stock.  Unless the stock is converted into cash through sales, the money invested is unproductive bringing no returns to the company.

This situation explains many things. Warehousing is essential as the company cannot afford to fail to satisfy the customer by not meeting his needs in time. Therefore, stocking the products within a margin of volume that will be suggested by the marketing personnel is well within the interests of the business. But at the same time, stocking out of proportion to the expected demand of the market leads to waste of finance.  The investment in the stock cannot be used for any other business activity. Here comes the critical importance of inventory management which in fact aims at maintaining minimum requirement of products.

It requires a skill that knows how to balance between stock in excess and stock in shortage.  Excess stock cuts in the profit of the company and shortage of products will lead to loss of business and a customer.  It is suggested that to avoid undue problems of this inventory intricacies, just in time inventory can be adopted.  You get the materials required on time so that your customers too get them in time.  To achieve this goal, logistics management comes to rescue.  Efficient logistics management, too complex and a difficult a task to be entrusted to rather novices, attains the goal of reduction in inventory.