The first primary function of inventory is geographical specialization.
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The first primary function of inventory is geographical specialization. This is when an organization spreads its inventory out across various locations, this avoids having all of its stock in one location making it more available to customers. An example of this would be working on a home project, like replacing the doorknobs in your home. You go out and find one set at Lowes but must go to Home Depot for the remaining knobs. The company that manufactured the knobs has utilized geographical specialization to increase the availability of their products for the customer. The second primary function is known as Decoupling. This deals with producing specific parts of a product separately from the completed product. For example, when cars are being manufactured, there are separate locations that build the individual parts of it, like the engine shop, or the shop that makes the seats. The main production of the car continues along until the seats or engine is ready to be installed, then these items are pulled from a stockpile and added to the main build. The next primary function of inventory is balancing supply and demand. This is simply the concept of maintaining balanced inventory levels to match the demand from customers. An example of this is the gaming market. When the P85 and XBOX series X were released they did not have appropriate inventory levels to keep up with the demand for these consoles, which is why even to this day it is difficult to get your hands on one. Finally, buffering uncertainty is the last primary function of inventory. This is the idea of having an increased inventory or having an inventory reserve because of an unknown consumer demand. This concept can be related to the example given above, it Sony and Microsoft had overproduced the consoles ahead of time or had a product reserve, the availability would be increased. The first account category of inventory carrying cost is storage. Storage cost is the expense accrued from storing parts in a warehouse or storage facility. This can range from the price of the facility to having employees manage and track the inventory stored. The second category is obsolescence. Obsolescence is the cost of expired or obsolete goods, an example of this would be a product that was stored for too long and has reached or exceeded its expiration date. The last category is insurance, this is the cost required to protect the investment of goods or items. An example of this would be having insurance for a cargo plane that crashed, the airline company would be insured enough to cover the cost of any damaged or lost items to repay the sellers. The three main effects of transportation cost are distance, density, and weight. When items are shipped at a long distance and weigh more than 1000|bs and it takes up a lot of space then if you were to ship it via ground or train, it would cost less than shipping it through the air. Only if this item had to be delivered within a shorter time would it be more advantageous to ship it through air transportation. But on the other hand shipping an item that is low in weight, but is perishable in a high density, would still have a high price due to the space it takes up and the amount of time required for delivery 6+
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