To stabilize production: The seasonality, manufacturing schedule, and other factors, among others, can influence changes in demand for a given good. The inventories (raw materials and components) should be made available to the production as per the demand failing, resulting in stock out and the production stoppage for want of materials. Hence, the inventory is kept to handle this fluctuation so that production is smooth.
To take advantage of price discounts: Usually, the manufacturers offer discounts for bulk buying. To gain the price advantage, the materials are bought in bulk even though they are not required immediately. Thus, inventory is maintained to achieve economy in purchasing.
To meet the demand during the replenishment period: The lead time for procurement of materials depends upon many factors like the location of the source, demand-supply condition, etc. In order to satisfy demand during the procurement (replenishment) period, inventory is maintained.
To prevent loss of orders (sales): One cannot afford to miss the delivery schedule in this competitive environment because doing so may result in lost revenue. Delivery timetables must be met at a 100% service level. To avoid this the organizations have to maintain inventory.
To keep pace with changing market conditions: Organisations must prepare for shifting market emotions and stock up on supplies in case they become unavailable or prices spike unexpectedly.
Sometimes the organizations have to stock materials due to other reasons like suppliers’ minimum quantity conditions, seasonal availability of materials, or sudden price increases.
