Why should you care about inventory?
- If the bookseller is expanding (more sales, more shops), then increasing inventory is a sign of success.
- If the bookseller is not expanding, then increasing inventory is deeply concerning. The bookseller is buying books it can't sell.
- FIFO is first-in, first-out - the first items purchased are the first items sold. Inventory is valued at current market prices.
- LIFO is last-in, first-out - the last items purchased are the first items sold. Inventory is valued at historic market prices.
Inventory and politics - Brexit
- Scenario 1: no Brexit supply chain disruption. UK firms have an excess of inventory. They can either keep the inventory indefinitely (and pay higher costs than their overseas competitors) or they can run down inventory by producing less (and either pay workers to be idle or have shorter working).
- Scenario 2: Brexit supply chain disruption. UK firms can't get parts, so they run down inventory until supply chain issues are fixed. Firms pay for production workers to be idle or have shorter working hours.
- Changes to inventory evaluation methods (LIFO, FIFO).
- Increases in inventory not matched to growth.
- Increasing sales to distributors not matched to underlying market demand (especially when the inventory never leaves the company).