The Motives for Holding Inventory Explained

In the hustle and bustle of the Christmas season, retailers stock their stock certificate with dozens of Christmas items in anticipation of the holiday rush. When Christmas has passed, the insert is left with Christmas items that did non change. To make room for the next calendar holiday, the retailer ordain sell their Christmas buy in at extreme discounts. What forever doesnt sell leave behind be restocked in gillyflower for the next Christmas season.The retailer is able to make out a jump-start for the next Christmas season by placing last courses Christmas memorial out in October. A good headache operation understands that there will be times when holding inventory becomes crucial in their success. From non wanting to spend additional currency on restocking, to preparing for fluctuations in market conditions, motives for holding inventory are vital in inventory management.There are 4 motives for holding inventory Production smoothing, inventories as a factor of produ ction, stock-out avoidance, and work in draw near (Gregory, 2007). Production smoothing, the first of the four motives, involves preparing for fluctuations in sales, as well as seeking a more economically sound path to breed production. When sales offset production either positively or negatively, inventories will rise or fall. With production smoothing, it is more logical to produce items at a constant rate (Gregory, 2007).The second motive is consideration for inventories as a factor of production. Lets say that a fun teacher is looking 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 furrow be beget they restocked Christmas trees that didnt sell from last year. The third motive, stock-out avoidance, protects a business from mystifyual risk, as well as lost sales in the event of high use up (Fafechamps, 1997). With contractual risk, twain the business and the knob run the r isk of not adhering to a contract, but inthe way of business, holding inventory provides better odds that the business will select what the client requires in order to conduct business and comply with their contract (Fafechamps, 1997).In addition to this motive, universe prepared for unexpected demand is authoritative in keeping business. For example, an unexpected freeze in the fall could cause people to shop in droves for firewood. The retailer who does not meet the demand will lose business and retain the reputation of not being sufficiently stocked. The final motive, although not really a motive at all, is work in progress. Any unfinished item in the reposition must also be counted as inventory (Gregory, 2007).If you have ever walked into a store to buy a specific item and put that the store does not have it in stock, you may avoid the store all together in the future. Holding inventory is important for both the business and the customer. It ensures repeated business and ma kes 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 riskiness in Marketing. January 2007.