WCM/U4 Topic 2 Objectives of Inventory Management
There are two main objectives of inventory management:
1. Making Adequate Availability of Inventories:
The main objective of inventory management is to ensure the availability of inventories as per requirements all the times. This is because both shortage and surplus of inventories prove costly to the organization. In case of shortage of availability in inventories, the manufacturing wheel comes to a grinding halt. The consequence is either less production or no production.
The either case results in less sale to less revenue to less profit or more loss. On the other hand, surplus in inventories means lying inventories idle for some time implying cash blocked in inventories. Speaking alternatively, this also means that had the organization invested money blocked in inventories invested elsewhere in the business, it would have earned a certain return to the organization. Not only that, it would have also reduced the carrying cost of inventories and, in turn, increased profits to that extent.
2. Minimising Costs and Investments in Inventories:
Closely related to the above objective is to minimize both costs as well as volume of investment in inventories in the organization. This is achieved mainly by ensuring required volume of inventories in the organization all the times.
This benefits organization mainly in two ways. One, cash is not blocked in idle inventories which can be invested elsewhere to earn some return. Second, it will reduce the carrying costs which, in turn, will increase profits. In lump sum, inventory management, if done properly, can bring down costs and increase the revenue of a firm.