BPI Exercise – Process Walk Through and Analysis
Business Improvement Projects are great way of unleashing the operational efficiency and increasing the effectiveness of the entire business operations. It helps Organizations prune their processes and eliminate redundancies when reviewed from time to time. Business operations are dependent upon well defined documentation and detailed as well as efficient processes no doubt. However, the processes […]
Why Viewing Global Trade in Zero Sum Terms is Shortsighted and Self Defeating
Trade Wars and Zero Sum Thinking The ongoing trade wars between the United States, on one hand, and the rest of its trading partners, including China, Canada, and the EU or the European Union stem from a basic misinterpretation of global trade in Zero Sum terms or I win, You Lose kind of thinking. As […]
Why the Present Situation in the Global Economy Resembles the 1990s
Most of us would not have been that old to remember the global economic conditions that were prevailing in the 1990s. Especially, the present generation that grew up later in the decade would not be conversant with the turbulence that the global economy experienced in during those times. For those who are in their thirties, […]
Selecting 3PL Service Provider for Warehouse Management
Global business models are rapidly changing. Shorter life cycles of products and new business need exert pressure on Supply Chain managers to keep pace with the new scenarios. They are often faced with the target to reduce logistical costs and establish new supply networks. It has now become a common practice to outsource all logistical […]
What are Metrics and Why are they Important?
What are Metrics? Metrics are numbers that tell you important information about a process under question. They tell you accurate measurements about how the process is functioning and provide base for you to suggest improvements. It is said that only when one can express their understanding in terms of numbers is the understanding satisfactory and […]
Inventory is a necessary evil that every organization would have to maintain for various purposes. Optimum inventory management is the goal of every inventory planner. Over inventory or under inventory both cause financial impact and health of the business as well as effect business opportunities.
Inventory holding is resorted to by organizations as hedge against various external and internal factors, as precaution, as opportunity, as a need and for speculative purposes.
Most of the organizations have raw material inventory warehouses attached to the production facilities where raw materials, consumables and packing materials are stored and issue for production on JIT basis. The reasons for holding inventories can vary from case to case basis.
Production plan changes in response to the sales, estimates, orders and stocking patterns. Accordingly the demand for raw material supply for production varies with the product plan in terms of specific SKU as well as batch quantities.
Holding inventories at a nearby warehouse helps issue the required quantity and item to production just in time.
Market demand and supplies are seasonal depending upon various factors like seasons; festivals etc and past sales data help companies to anticipate a huge surge of demand in the market well in advance. Accordingly they stock up raw materials and hold inventories to be able to increase production and rush supplies to the market to meet the increased demand.
Buying raw materials in larger lot and holding inventory is found to be cheaper for the company than buying frequent small lots. In such cases one buys in bulk and holds inventories at the plant warehouse.
If there is a price increase expected few months down the line due to changes in demand and supply in the national or international market, impact of taxes and budgets etc, the company’s tend to buy raw materials in advance and hold stocks as a hedge against increased costs.
Companies resort to buying in bulk and holding raw material inventories to take advantage of the quantity discounts offered by the supplier. In such cases the savings on account of the discount enjoyed would be substantially higher that of inventory carrying cost.
In case of raw materials being imported from a foreign country or from a far away vendor within the country, one can save a lot in terms of transportation cost buy buying in bulk and transporting as a container load or a full truck load. Part shipments can be costlier.
In terms of transit time too, transit time for full container shipment or a full truck load is direct and faster unlike part shipment load where the freight forwarder waits for other loads to fill the container which can take several weeks.
There could be a lot of factors resulting in shipping delays and transportation too, which can hamper the supply chain forcing companies to hold safety stock of raw material inventories.
Often raw material supplies from vendors have long lead running into several months. Coupled with this if the particular item is in high demand and short supply one can expect disruption of supplies. In such cases it is safer to hold inventories and have control.
Holding inventories help the companies remain independent and free from vendor dependencies.
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