Answer to Question #203089 in Management for nhlaphu

Question

ESKOM’S SUPPLIER PROBLEMS

question:

1. What will be the economic importance of holding inventory for Eskom?(30 marks)

Answer 1

Reducing shortage

Typically, businesses produce things with hundreds of components. If any of these are absent, the entire production process might be halted. To avoid a scarcity of raw materials, the company might keep greater stockpiles on hand.

Reduction of order cost

When a company puts an order, it incurs some costs. Various forms must be filled out. Approvals must be acquired, and products must be received, examined, and tallied when they arrive. The pricing will be determined by the amount of orders placed. The less inventory there is, the less capital is required to carry it.

Prevents lost sales

Most businesses would go out of business if they didn't have inventory on hand. In general, a company must be able to supply things on demand. Inventory control benefits both the enterprise and the consumer by assuring the timely availability of an appropriate quantity of commodities.

Secure discounts

Many providers will lower the cost of supplies and component components if you buy in quantity. The corporation may be able to obtain discounts on a regular basis as a result of the huge purchases. As a result of these discounts, the cost of items is reduced, and profits are increased.

Helps in tiding against demand fluctuations

Inventory control also aids the company in managing demand fluctuations. The company takes care of these by holding a safety supply. The term "safety stock" refers to stockpiles held to defend against changes in sales, manufacturing, and procurement times. The goal of inventory control is to keep the expense of maintaining safety stock to a bare minimum.