Inventory in the form of raw materials, work in process or finished goods is held;
- to facilitate the production process by both ensuring that supplies are at hand when needed and allowing a more even rate of production and
- to make certain that goods are available for delivery at the time of sale.
Although, conceptually, the inventory management problems faced by multinational firms are not unique, they may be exaggerated in the case of foreign operations. For instance, MNCs typically find it more difficult to control their overseas inventory and realize inventory turnover objectives. There are a variety of reasons: long and variable transit times if ocean transportation is used, lengthy customs proceedings, dock strikes, import controls, higher duties, supply disruption, and anticipated changes in currency values.
Advanced Inventory Purchases
In many developing countries, forward contracts for foreign currency are limited in availability or the nonexistent. In addition, restrictions often preclude free remittances, making it difficult, if not impossible, to convert excess funds into a hard currency. One means of hedging is to engage in anticipatory purchases of goods, especially imported items. The trade-off involves owning goods for which local currency prices may be increased, thereby maintaining the dollar value of the asset even devaluation occurs, versus forgoing the return on local money market investments.
Because of long delivery lead times, the often limited availability of transport for economically sized shipments, and currency restrictions, the problem of supply failure is of particular importance for any firm that is dependent on foreign sources. These conditions may make the knowledge and execution of an optimal stocking policy, under a threat of a disruption of supply, more critical in the MNC than in the firm that purchases domestically.