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This topic contains 2 replies, has 2 voices, and was last updated by Avatar of Matt mbmullins76 7 years, 4 months ago.

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    Avatar of Matt

    Hello. Is it worth it to keep inventory on hand or have a “just in time” process? Thank you,Matt 

    Avatar of Aaron



    As a rule of thumb, when you’re holding inventory, you’re incurring cost.  The biggest costs associated with keeping inventory are:


    1) Opportunity cost – occupying space at your business location for storage prevents you from expanding another department and potentially increasing efficiency or profitability,

    2) Direct cost – if for example you are renting space specifically for storage,

    3) Indirect cost – things like heating, electricity, or general overhead costs are incurred in association with maintaining your supplies in-house.


    Like most matters relating to the successful operation of your business, there are many things to consider here.    Before coming to a decision, you will ultimately need to determine which space allocation provides the maximum amount of value at minimal cost.  Some typical things you may ask yourself are:


    - How rapidly does your inventory deplete?

    - What kind of storage capacity does your business location have currently?  Is it enough?

    - How much physical space do your employees need to operate equipment / manufacture / provide services?

    - Do you have ongoing transportation costs to acquire materials / inputs?

    - Will you have customers at your location?   How much space do you need to accommodate them? (eg, are you a restaurant that needs to provide seating for many patrons, or an auto mechanic shop that requires minimal seating for one or two customers at a time?)

    - How frequently and thoroughly do you reconcile your inventory?  Do you have the funds to implement a highly organized inventory tracking system if you don’t already have one?


    Just-in-time as an inventory management strategy can provide tremendous cost-savings if your company keeps a tight watch on its inputs and outputs.    If you have close ties with a manufacturer that is willing to commit to a J.I.T. arrangement with your company, your material input turn-around is high and closely monitored, and you are looking to improve departmental efficiencies, just-in-time may be for you.   For most small businesses that are just starting out, however, this is not immediately an option because turn-around can be quite unpredictable.


    Avatar of Matt

    Great, thank you for the reply

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