BÀI GIẢNG 2: TÁC ĐỘNG CỦA TÀI CHÍNH INVENTORY docx

GLOBAL LOGISTICS
GLOBAL LOGISTICS
LECTURE 2: FINANCIAL IMPACT OF INVENTORY
Agenda
Agenda

1 Definition of Inventory

2 Types of Inventory

3 Positive financial impacts of Inventory

4 Negative financial impacts of Inventory

5 Inventory and Cash flow

6 Summary
1 Definition of Inventory
1 Definition of Inventory

Inventory can be defined as the amount of material
which a company has in stock at a specific time.

In term of finance, Inventory can be defined as the
total capital investment over all the materials
stocked in the company at any specific time.
2 Type of Inventory
2 Type of Inventory
Inventory can be in form of:

raw material inventory


in process inventory

finished goods inventory

spare parts inventory

tools and equipments

office stationary etc.
3 Positive financial impacts of
3 Positive financial impacts of
inventory
inventory

Inventory has many positive impacts in term of
cost saving, sales support and effective
operation:

Material available to meet future demand

To avoid Bullwhip effect:
◦
demand information is distorted as it moves away
from the end-use customer
◦
higher safety stock inventories to are stored to
compensate

Inventory provide an independence from vendors

3 Positive financial impacts of
3 Positive financial impacts of
inventory
inventory

Keep supply chain moves smoothly

Take advantage of discount as buying large
amount of material

To reduce machine idle times by providing
enough in-process inventories at appropriate
locations

To reduce clerical cost associated with order
preparation, order procurement
3 Positive financial impacts of
3 Positive financial impacts of
inventory
inventory

To reduce the material handling cost of semi-
finished products by moving them in large
quantities between operations.

Stability of Input cost

Take advantage of discount as buying large
amount of material.


Take advantage of economy of scale in
transportation
4 Negative financial impact of inventory
4 Negative financial impact of inventory
Inventory cost in a business include:

Unit cost: it is usually the purchase price of
the item under consideration. If unit cost is
related with the purchase quantity, it is
called as discount price.

Procurement costs: This includes the cost
of order preparation, tender placement, cost
of postages, telephone costs, receiving
costs, set up cost etc.
4 Negative financial impact of inventory
4 Negative financial impact of inventory

Carrying costs: This represents the cost of
maintaining inventories in the plant. It
includes the cost of insurance, security,
warehouse rent, taxes, interest on capital
engaged, spoilage, breakage etc.

Stock-out costs: This represents the cost of
loss of demand due to shortage in supplies.
This includes cost of loss of profit, loss of
customer, loss of goodwill, penalty etc.
4 Negative financial impact of inventory
4 Negative financial impact of inventory

The total annual cost of inventory can be expressed
as: Total annual inventory cost = Cost of items +
Annual procurement cost + Annual carrying cost
+ Stock-out cost
The objective is to minimize the total annual
cost of inventory to maximize the annual profit !


5 Inventory and Cash flow
5 Inventory and Cash flow

Cash flow refers to the movement of cash into
or out of a business, a project, or a financial
product. It is usually measured during a
specified period of time.

The flow of inventory and cash flow are
interrelated

Effective control of inventory can improve cash
flow over a period of time.
5 Inventory and Cash flow
5 Inventory and Cash flow
6 Summary
6 Summary

Inventory is necessary for any company

Inventory has both positive and negative impacts
in term of finance


Advantages of inventory can improve company’s
financial situation

Minimize the total annual cost of inventory to
maximize annual profit

Inventory flow and cash flow are interrelated.