Business finance

AGENCY THEORY BY CHRIS INVENTORY MANAGEMENT TECHNIQUES Economic order quantity (E. O. Q) The economic order quantity (E .O. Q) is the order quantity that is responsible for the minimizing of total holdings and ordering costs annually. The key feature of the economic order quantity is that it is minimizes the cost. The advantages of the (E. O. Q) are:- The main advantage of the economic order quantity is that it helps in cost minimization when ordering inventory. This technique helps especially when the firm has exhausted the inventory and wants to replenish the stock. The disadvantages of the (E. O. Q) on the other hand are:- Constant lead time This happens when a firm runs out of stock and orders for new stock. There is a period that they have to wait for the products to arrive even when they ordered immediately. However, if the firm takes into consideration the reorder dates and takes into account the suppliers’ reliability, it can solve this problem. Fixed ordering and holding cost This is brought about by the assumption that each unit has a cost of stockpiling of security and holding until reorder. This holding cost makes many companies to incur little profit since the units are held for some time. Relatively uniform and known demand rate The E.O.Q technique makes firms to order for products at a familiar and same amount of products. This makes the firms not to get some of the discounts that suppliers give to customers who buy a lot of inventory.  Just in Time Technique The just in time technique is where inventory strategy firms employ people to increase efficiency and decrease waste by receiving goods only when they are needed in the production process, thereby reducing the inventory costs. This inventory technique requires that producers are able to accurately forecast demand. Advantages if Just in Time Technique are:- Customer needs The just in time technique is efficient because it reduces inventory levels, and enables companies to order for inventory according to the customer needs. Inventory costs The minimization of inventory is very beneficial to firms since it reduces the holding space and staff required. Due to this reduction of costs firms opt to invest their savings in business growth and other arising opportunities. Disadvantages of Just in time (J.I.T) are:- Coordination The J.I.T technique involves a lot of coordination between retailers and suppliers in the distribution channel. Retailers often put their trust in suppliers by having software put in their I.T systems which are linked to their suppliers in order for them to monitor the inventory levels at the various stores and distribution centers. This coordinated efforts lead to building up of technology infrastructure which is expensive. A lot of risks The risks involved in the just in time technique are that in the time for inventory ordering there might be no products and there might be a lot of holding cost.  Material Resource Planning (M.R.P) Material resource planning (M.R.P) is a computer based and production, planning, and inventory control system. M.R.P is concerned with both production and inventory control. The key features of M.R.P are :- To ensure the availability of materials, and products for planned production and for customer delivery Minimization of inventory levels Planning manufacturing activities and purchasing activities.