What Are The Advantages And Disadvantages Of Holding Low Levels Of Components And Raw Materials Stocks?


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The advantage of holding low levels of raw materials is that you do not have to have a large warehouse and holding costs of the inventory. It is generally accepted that inventory can make up as large as 20 % of the costs. There is no spoilage and no loss of inventory. You do not need a large staff to maintain and keep track of the inventory and it makes your organization lean. If you are using low levels of inventory then you need to have good communication with the supplier otherwise you will not be able to get inventory on time for production. Low levels of inventory cannot provide you with a cushion in case there is a surge in demand or there is no availability of the raw materials. In case there is some problem due to spoilage, there is no extra raw material to cover up for it.

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