Global operation and supply chain Essay Example | Topics and Well Written Essays - 500 words

Global operation and supply chain - Essay Example nventory can be referred to as the quantity of goods and materials on hand.   A stock includes finished products, goods undergoing production process, and raw materials. The main purpose of inventory management is to keep enough inventories to meet customer demand, maintain independence of operations, allow flexibility in product scheduling and be cost effective (Allen, 2008: 881).   Inventory management usually ensure the availability of raw materials in sufficient quality and quantity, thus it is of great importance to have a proper control and management inventory (Axs.ater, 2010: 1329). Inventory management is necessary as it prevents leakage, deterioration, spoilage and wastage of materials. Its aim is to improve material handling, saving in material cost, increase production and large profits (Allen, 2008: 883). First-In, First-Out method: this is a method of valuing the cost of goods sold that uses the cost of the oldest items in inventory first.   This is based on the assumption that goods that are sold or used first are those goods that are bought first (Axs.ater, 2010: 1330).   Last-In, First-Out method: This is an inventory valuing method that assumes that the last items placed in inventory are the first sold.   Therefore, when the Last in First Out method is applied, the year-end inventory consists of the goods placed in inventory at the beginning of the year, rather than at the end.   During inflation, when prices are rising, this method yields a lower ending inventory, lower gross profit, higher cost of goods sold and a lower taxable income (Anderson and Narus, 2011: 99).   This method is preferred because it reduces a company’s taxes and increases cash flow. Specific Identification method: this is the simplest method of valuing inventories.   The sale of inventory requires the inventory account to be credited or reduced, and cost of goods sold should be debited or increased for the amount paid for each inventory item.   This method works