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A manager is concerned about ongoing theft and the cost of storing raw materials - HSC - SSCE Business Studies - Question 11 - 2020 - Paper 1
Question 11
A manager is concerned about ongoing theft and the cost of storing raw materials. Which inventory management strategy would best address the manager’s concerns? A. J... show full transcript
Worked Solution & Example Answer:A manager is concerned about ongoing theft and the cost of storing raw materials - HSC - SSCE Business Studies - Question 11 - 2020 - Paper 1
Step 1
Which inventory management strategy would best address the manager’s concerns?
Answer
To address the manager’s concerns regarding ongoing theft and the cost of storing raw materials, the most suitable inventory management strategy is Just-in-time (JIT).
Explanation:
The Just-in-time strategy minimizes inventory holding costs by ordering materials only as they are needed in the production process. This means there are fewer raw materials on hand, which directly reduces the risk of theft. Additionally, since materials are ordered based on current demand, the associated storage costs are significantly lowered.
In contrast:
- Warehousing involves holding more inventory, increasing the risk of theft and storage costs.
- Last-in-first-out (LIFO) and First-in-first-out (FIFO) strategies focus on managing inventory turnover but do not address the concerns of theft and storage costs effectively as they entail maintaining a backlog of materials.