I’ve a question which is not relevant with this Item Set but the doubt came after reading sol^n of Q.22
Here it’s written that inventory cannot be zero & it rises with rise in sales but if suppose it’s a matured co., not experiencing growth & with time inventory is reducing so can the inventory be 0 also if it becomes 0 does that mean co., is about to file for bankruptcy?
Please help me with this. Thank you!
It does not mean that a company that has zero inventory is going to file for its bankruptcy. A company may have zero inventory so that it can utilize its funds at some other place instead of blocking the funds in the inventory.
Hey Udit ek chiz btaye jese ki aapne kha ki instead of blocking funds co., may invest it somewhere else, but, if inventory is 0 then how will the co., carry out it’s operation during the year?
to order the exact quantity that will be sold, and receipt goods into stock when they are needed.
Based on the just-in-time inventory approach of short lead times, zero inventory is more effective, flexible and less expensive than holding and storing large amounts of inventory. Stock is effectively pushed back up the supply chain by the retailer who wants to avoid the risks and cost of holding inventory.
The zero-inventory approach is not feasible for all enterprises but is perfectly suited to many businesses in today’s technological environment. Most internet-based retailers operate using the zero-inventory model, particularly for high variety, perishable and fashion-based consumer lines. Allowing companies to maximise cashflow by raising the speed and rate of inventory turns.
Ultimately, a zero-inventory strategy relies on having an efficient supply chain that is completely reliable.
Thank you Udit for this elaboration.