Logistics Essay Example | Topics and Well Written Essays - 1500 words

Logistics - Essay Example It, in a manufacturing enterprise, consists of raw materials, work in progress and finished products. While the transportation cost of inventory may not be significantly variant, there is a significant variation in the cost incurred in storage of inventory. While some of the costs involved in dealing in and management of inventory are accounted for in the benefits associated with having the inventory, some of the involved costs are considered as wastes. Inventory therefore has its advantages in the form of derived benefits while it is at the same time associated with a number of disadvantages that includes induced unnecessary costs. One of the disadvantages of inventory, and which induces costs is the processes that are involved in the flow of inventory in an organization. Goldsby and Martichenko for example explains the additional costs of managing inventory as a disadvantage that an organization has to endure in order to obtain a set of inventory and finally transfer them to their point of demand. Every set of inventory held by BMW will therefore induce an extra cost to an entity on top of the cost of the goods. The additional costs such as the costs incurred when the inventory is â€Å"received, housed, paid for, and insured† are examples of expenses that BMW is most likely to incur when dealing in inventory (Goldsby and Martichenko, 2005, p. 20). Such costs add up to operational costs, costs of sales and consequently reduce an organization’s profit margin. Maintain an appropriate level of inventory at a particular time is however associated with satisfaction of consumers’ immediate demand for commodities (Goldsby and Martichenko, 2005, p. 20). A stock of goods allows BMW to deliver commodities at customers demand instead of arranging for the commodities after an order is placed. Maintaining inventory is therefore associated with both advantages and disadvantages. Another advantage of inventory that may prompt for endurance of the involv ed costs of its maintenance is the security of continuous supply of commodities to BMW’s consumers. This is because suppliers are not expected to regularly avail commodities in the supply chain. Seasonality or disrupted operations may also cut off flow of commodities from a supplier. Similarly, disruption in supply chain activities such as transportation systems may limit access of commodities down the supply chain. Maintained inventory can therefore allow BMW to be able to absorb ‘short-term’ disruption in supply chain to ensure continuous supply of products down a supply chain. While it adds to the costs on an organization, it also facilitates customer utility by ensuring ready availability of commodities at consumers’ demand (Goldsby and Martichenko, 2005, p. 20). Inventory management through customer relation management and supplier relations management is another process that monitors and influences inventory decisions by establishing reliable links u pon which planning can be made for a continuous supply chain with minimum inventory costs. This ensures that BMW stocks inventory for immediate future needs of its commodities, by the consumers. Similarly, developed relations with both suppliers and consumers identifies needs for value addition and facilitates reduction of costs in distribution through eliminating unnecessary costs (Lambert, 2008, p. 295; Cope and Brown,