Inventory Investment

Financing needs can change rapidly because the cyclical nature of sales causes the level of investment in inventory to vary. Inadequate investment can result in missed opportunity for future sales as well as the loss of goodwill. Some companies, such as Procter and Gamble Corp., have built these fac...

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Bibliographic Details
Published in:The Secured lender 1989-11, Vol.45 (6), p.78
Main Author: Nagle, William
Format: Article
Language:English
Subjects:
Accounts Receivable Financing
Capital costs
Capital investments
Costs
Financial analysis
Inventory
Inventory costing methods
Inventory management
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Summary:Financing needs can change rapidly because the cyclical nature of sales causes the level of investment in inventory to vary. Inadequate investment can result in missed opportunity for future sales as well as the loss of goodwill. Some companies, such as Procter and Gamble Corp., have built these factors into their investment equation. Stockouts can have a far-reaching effect, so they must be accounted for in the inventory investment decision. Since inventory decisions are closely related to the marketing approach, the 2 divisions should work together to improve operating costs. Inventories with a high degree of stockout risk should be accounted for by adjusting the cost of capital downward, while brands that rarely experience stockouts should be analyzed at the cost of capital discount rate. Inventory managers should perform quarterly evaluations of the impact of the overall world market on their product line.
ISSN:0888-255X