I'm writing this blog to start an open discussion about how the current and future economic conditions will affect firms' inventory management practices. With the DOW closing at about 8600 today everyone is, no doubt, losing faith in the stock market. Will this trend cause companies to alter the way that they treat their inventory? Or, will they continue to maintain their current practices?
Since businesses are constantly balancing the riskiness of each investment with its payoff, will the poor performance of the country's financial markets cause inventory to be a more attractive investment?
There is also, of course, the possibility that firms undergoing hardships could attempt to unload their inventories into the market in order to generate excess cash.
I would argue that the changes in today's financial market will definitely change firms' inventory practices, but what do you think?
Please respond with any ideas...
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2 comments:
Very interesting question.
Let's see if we can get a discussion going on this topic.
You can start the discussion by collecting/citing example practices.
I think increasing inventory in response to the country's financial markets, does not make much sense. The economy as a whole is going down. If you continue to produce or procure additional inventory, you are just incurring more expense. Right now most businesses that I have heard of are trying to lower inventories, because they are high and the company is unable to unload them. If the businesses could unload their inventories for cash, they would. Of course if this were possible then the company would make or buy more and unload that, and are growth rate would not be slowing, but increasing. In our current condition less people are spending money, businesses are cutting inventory not by improving systems, but as a response to lack of demand. So in my mind inventory policy is not be changed as much as inventory levels are trying to be changed. This change in inventory level is in response to a decrease in demand not a change in policy.
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