How to Manage Inventory While Keeping Costs Down Essay

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Safety Inventories and Product AvailabilityInventory in global supply chains serves various purposes. It buffers against uncertainties, bridges the temporal gap between production and consumption, and enables economies of scale in production and transportation. Plus, inventory allows businesses to satisfy customer demand promptly, which is particularly essential in an increasingly demanding and time-sensitive global market.However, maintaining inventory comes with associated costs—holding and carrying costs. Holding costs (also known as carrying costs) are expenses related to storing unsold goods. These costs include the cost of space for storing the goods (warehouse rent or depreciation), handling costs, insurance, taxes, obsolescence, spoilage, and the opportunity cost of the tied-up capital. Warehouse rent or depreciation could either be the rent paid to a third-party property owner or the depreciation of the warehouse property owned by the company. In both cases, the larger the inventory held, the larger the storage space required, and thus the higher the cost.Handling costs are the costs associated with moving goods in and out of storage. They include labor costs for warehouse staff, fuel and maintenance for forklifts and other handling equipment, and costs related to inventory management systems. More inventory typically requires more handling, so these costs increase with larger inventory levels.

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Companies also need to insure their inventory against loss or damage. Additionally, some types of inventory can become obsolete or spoil over time (Cho?odowicz & Or?owski, 2021).…

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…total inventory costs. Quantity discounts can also affect the lot size (Sebatjane & Adetunji, 2019). These are price reductions that suppliers offer to buyers for making large-volume purchases. Quantity discounts can influence the decision on how much inventory to order: the buyer might decide to order in larger lots to take advantage of the discounted price, even if this leads to higher holding costs.All in all, lead time reduction is a key strategy for managing safety inventory in global supply chains. It can lead to lower safety stock, more accurate demand forecasting, reduced carrying costs, and overall improved efficiency. Businesses need to balance this with factors like optimal lot sizing and potential quantity discounts to achieve….....

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