Answer to Question #202410 in Management for @bridget

Question

What will be the economic importance of holding inventory for Eskom?

Answer 1

Eskom will save money by keeping inventory on hand. If a company keeps enough inventory on hand, it can quickly fulfill customer orders, avoiding the risk of losing consumers and consequently sales. In addition, the organization will receive a quantity discount. If the company orders a huge amount of a particular material, the supplier will provide generous quantity discounts by lowering the price. This quantity discount will lower the firm's cost of goods and improve sales revenues. Order costs will be reduced if inventory is kept on hand. A company can save money by ordering in bulk. Forms must be filled out, approvals must be acquired, and the items must be received, examined, and counted as part of the cost of placing an order. After that, an invoice must be created and payment made. Depending on the amount of orders placed, the cost of getting materials may vary. By placing bulk orders, the number of orders will be reduced, and the cost will be reduced.

By keeping inventory, Eskom will be able to execute more efficient manufacturing runs. When a company sets up its labor/manpower and machines to manufacture items, it incurs start-up costs. When production begins, the expense will be absorbed. When the manufacturing process is extended, the cost will decrease. The startup cost of a company's manufacturing line will rise if it is set up frequently. Keeping an inventory to ensure that the manufacturing line never runs out of raw materials will result in a longer production run and, as a result, a reduced startup cost. The company's risk of production shortages will be reduced if inventory is kept on high levels. To keep vast amounts of raw materials and unprocessed components, an inventory is required. The entire production line could be halted if a single component runs out of supply. The firm should maintain inventory management to reduce the possibility of crucial component shortages throughout a large production process. This will avoid a lack of critical raw materials and components required to manufacture items. Any shortage will be managed and notified by the system before it occurs. Inventory management systems are ideal for storing big quantities of product and ensuring that a company's inventory is always in check.