The Motives for Holding Inventory Explained

In the hustle and bustle of the Christmas season, retailers stock their size up with dozens of Christmas items in anticipation of the holiday rush. When Christmas has passed, the storage is left with Christmas items that did non sell. To make room for the next calendar holiday, the retailer will sell their Christmas overstock at extreme discounts. Whatever doesnt sell will be restocked in memorial for the next Christmas season.The retailer is able to get a stand out for the next Christmas season by placing last course of studys Christmas record out in October. A good business operation understands that thither will be times when holding inventory becomes crucial in their success. From not wanting to spend improveral funds on restocking, to preparing for fluctuations in market conditions, motives for holding inventory are indispensable in inventory management.There are 4 motives for holding inventory Production smoothing, inventories as a performer of production, stock-out a voidance, and work in progress (Gregory, 2007). Production smoothing, the premier of the four motives, involves preparing for fluctuations in sales, as well as seeking a more economically sound way to continue production. When sales leg production either positively or negatively, inventories will rise or fall. With production smoothing, it is more logical to produce items at a continual rate (Gregory, 2007).The second motive is consideration for inventories as a factor of production. Lets say that a drama teacher is sounding for a Christmas tree in June for his Christmas in July production. The overstock from last years Christmas season assists in the retailer not losing business because they restocked Christmas trees that didnt sell from last year. The third motive, stock-out avoidance, protects a business from contractual assay, as well as lost sales in the event of last demand (Fafechamps, 1997). With contractual risk, both the business and the client run the risk of not ad hering to a contract, but inthe way of business, holding inventory provides better odds that the business will have what the client requires in order to conduct business and comply with their contract (Fafechamps, 1997).In addition to this motive, being prepared for unexpected demand is imperative in memory business. For example, an unexpected freeze in the fall could cause people to memory board in droves for firewood. The retailer who does not meet the demand will brook business and retain the reputation of not being sufficiently stocked. The final examination motive, although not really a motive at all, is work in progress. Any unfinished item in the store must overly be counted as inventory (Gregory, 2007).If you have ever walked into a store to buy a specific item and found that the store does not have it in stock, you may avoid the store all unneurotic in the future. Holding inventory is important for both the business and the customer. It ensures restate business and m akes for smooth sailing.References1. Gregory, Mankiw & Cronovich, Ron C. (2007) Investments and Inventory. January 2007. www.cwu.edu/wassellc/ECON%20302/Investment.pdf.2. Fafechamp, Marcel, Gunning, Jan W. & Oostendorp, Remco. (1997) Inventory, Liquidity and Contractual take chances in Marketing. January 2007.