Inventory uses and advantages

Inventory has many uses in a business, supply chain management or within production operations. Although carrying inventory can incur substantial costs, it may at times add value to the business and its customers when managed and controlled properly.

Among the many uses of inventory, the most common are:

-Provide a buffer for peak consumer demand lack of capacity or variations from regular demand levels
-Provide flexibility in meeting customer demands such as in mass customization
-Provide a buffer to absorb raw material supply issues
-Provide a buffer in case of production issues  or Downtime.
-Provide the ability to realize savings through economic order production/purchasing

It is important to understand that although some level of inventory is usually required to provide buffers against unforseen circumstances, if these inventory levels are not controlled properly, tracked or rotated they may actually cost a lot more in inventory holding costs than the value they provide the business and its customers in avoiding stock out costs. Keeping an up to date estimate of inventory holding costs for each part or finish good is a good way to gauge the optimal inventory holding quantity. Inventory management models, and inventory software packages are also useful in achieving this.