There are many reasons why an organisation would hold inventory. The reasons will depend on the specific circumstances of the demand for the product, the supply chain processes and the position of the inventory along its supply chain. Apart from the financial implications the following reasons could be valid depending on the circumstances:
Variation in Production Demand – In a manufacturing organisation the production plan will change in response to an increase in sales, customer demand and new product launches. Accordingly the demand for RM supply will vary with the production plan. Holding inventories either on-site or within a warehouse (outsourced) will ensure that only the required RMs are available as and when required by production.
Unexpected Customer Demand – A customer will expect to be able to purchase a product or service as and when they require it. Therefore an organisation will hold inventory in order to ensure that they can meet any unexpected demand.
