The Motives for Holding Inventory Explained

In the hustle and bustle of the Christmas season, retailers stock their inventory with dozens of Christmas items in anticipation of the holiday rush. When Christmas has passed, the store is left with Christmas items that did not sell. To make room for the next calendar holiday, the retailer will sell their Christmas overstock at extreme discounts. Whatever doesn’t sell will be restocked in inventory for the next Christmas season.
The retailer is able to get a jump-start for the next Christmas season by placing last year’s Christmas inventory out in October. A good business operation understands that there will be times when holding inventory becomes crucial in their success. From not wanting to spend additional 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 factor of production, stock-out avoidance, and work in progress (Gregory, 2007). Production smoothing, the first of the four motives, involves preparing for fluctuations in sales, as well as seeking a more economically sound way to continue 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. Let’s say that a drama teacher is looking for a Christmas tree in June for his “Christmas in July” production. The overstock from last year’s Christmas season assists in the retailer not losing business because they restocked Christmas trees that didn’t sell from last year. The third motive, stock-out avoidance, protects a business from contractual risk, as well as lost sales in the event of high demand (Fafechamps, 1997). With contractual risk, both the business and the client run the risk of not adhering to a contract, but in the 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 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 store must also 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 together in the future. Holding inventory is important for both the business and the customer. It ensures repeated business and makes for smooth sailing.
References

Don't use plagiarized sources. Get Your Custom Essay on
The Motives for Holding Inventory Explained
Just from $13/Page
Order Essay

Gregory, Mankiw & Cronovich, Ron C. (2007) Investments and Inventory. January 2007.http://www.cwu.edu/alumni/power-of-investment
Fafechamp, Marcel, Gunning, Jan W. & Oostendorp, Remco. (1997) Inventory, Liquidity and Contractual Risk in Marketing. January 2007.

Order a unique copy of this paper
(550 words)

Approximate price: $22

Basic features
  • Free title page and bibliography
  • Unlimited revisions
  • Plagiarism-free guarantee
  • Money-back guarantee
  • 24/7 support
On-demand options
  • Writer’s samples
  • Part-by-part delivery
  • Overnight delivery
  • Copies of used sources
  • Expert Proofreading
Paper format
  • 275 words per page
  • 12 pt Arial/Times New Roman
  • Double line spacing
  • Any citation style (APA, MLA, Chicago/Turabian, Harvard)

Our guarantees

At Solution Essays, we are determined to deliver high-quality papers to our clients at a fair price. To ensure this happens effectively, we have developed 5 beneficial guarantees. This guarantees will ensure you enjoy using our website which is secure and easy to use.

Money-back guarantee

Most companies do not offer a money-back guarantee but with Solution Essays, it’s either a quality paper or your money back. Our customers are assured of high-quality papers and thus there are very rare cases of refund requests due to quality concern.

Read more

Zero-plagiarism guarantee

All our papers are written from scratch and according to your specific paper instructions. This minimizes any chance of plagiarism. The papers are also passed through a plagiarism-detecting software thus ruling out any chance of plagiarism.

Read more

Free-revision policy

We offer free revisions in all orders delivered as long as there is no alteration in the initial order instruction. We will revise your paper until you are fully satisfied with the order delivered to you.

Read more

Privacy policy

All data on our website is stored as per international data protection rules. This ensures that any personal data you share with us is stored safely. We never share your personal data with third parties without your consent.

Read more

Fair-cooperation guarantee

Ordering and sending money to us is an indication that you are purchasing our products and services. To have business talks laid out in the official language, you can check on our terms and conditions and get more information about this.

Read more

Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
$26
The price is based on these factors:
Academic level
Number of pages
Urgency
Order your essay today and save 20% with the discount code: LEMONADEPlace Order
Live Chat+1(978) 822-0999EmailWhatsApp