Components of Inventory Decisions

Inventory held when demand go beyond expectation is known as safety inventory. Organization held safety inventory to fulfill the demand in uncertain situations. In uncertain demand when inventory could exceed expectation, firms usually seize safety inventory to encounter the unpredictably greater demand. In the safety inventory, supply chain manager faces a challenge of how much inventory to hold as safety.   

Seasonal Inventory

 

To fulfill the expected variability in the demand, seasonal inventory is carried. Seasonal inventory should be carried for the time of greater demand and is build up in the time of low demand when firms could not produce all that is demanded. Supply chain managers face challenges in determining whether to store up seasonal inventory, if yes then how much to carried. If a firm quickly changes the rate of its production method at lower cost, then the company may build seasonal inventory, because its production method can easily manage to the time of greater demand without incurring huge costs. Nevertheless, if altering the rate of manufacturing is costly, then it will be better for a firm to build up a smooth manufacturing rate and also build up inventory during time of low demand. The managers face challenges in deciding how much inventory should the firm carries. There always remains a challenge of cost of having more elastic manufacturing rate against the cost of carrying the extra seasonal inventory.    

Levels of Product Availability

 

Levels of goods accessibility is the part of demand that is fulfilled in the time product remains in the inventory. A greater level of goods availability gives a greater level of responsiveness but it results in extra cost, because higher inventory is stocked but is used infrequently. On the other side,   lower product availability decreases inventory holding cost however it increases the number of consumers who are not responded on time. The basic challenge faced in this type of inventory decision is the loss from not responding consumers on time and cost of inventory to product availability.