THE PROBLEM OF INVENTORY MANAGEMENT

The method to be used in inventory valuation has been the perennial problem that is prevalent with all organizations. Organizations maintain and keep adequate inventory for a number of reasons. Fundamentally, it may be economically impossible or unsound to have goods manufactured or supplied in a given system precisely at the time the demand for it occurs.

Without inventory, customers will have to wait until the orders were met from a source external to the client firm or such orders may be delayed until production has been undertaken. In most cases, customers do not wait for this delay in production or supply and what happens is that the customers looks for alternative source of supply which means the loss of that customer either temporarily or permanently and the loss of the profit on the sale with its spill over effect.

In some cases, organizations may deem it necessary to hold a good number of inventories when it is absolutely certain there is a likely possibility of an upward shift in material input or supply prices. The organization on the other hand may keep lower inventories when it anticipate a decrease in material or supply prices.

It is pertinent to indicate that in retail concerns, inventories are maintained in order to have various goods on display but still attract potential customers. There is this ascertain that varieties of goods on display to customers help to boost sales and profit. In practice, raw materials are purchased in large quantities in order to reduce cost associated with purchasing to obtain a favorable price, minimize handling and transportation cost. Inventory is of enormous economic benefits to organizations. However, the valuation of inventory has been a common problem in most organization.

According to Doug Brinlee (2006:379) he said that a successful business relies on many factors, one of which is a reliable inventory management system. Inventory management problems can interfere with a company profits and customer service. They can cost a business more money and lead to an excess of inventory over stock that is difficult to move. Most of these problems are usually due to poor inventory processes and out of date system. They are a number of problems that can cause havoc with inventory management. Some happen more frequently than others. Here are some of the more common problems with inventory system:

• Unqualified employees in charge of inventory.
• Using a measure of performance for their business that is too narrow.
• Unrealistic business plan for a business for the future.
• Not identifying shortage ahead of time.
• Too much “distressed stock” in inventory
• Items in stock getting misplaced
• Not keeping up with the rising price of raw materials, etc