Inventory Management Practices in Multinational Corporations

Inventory in the form of raw materials, work in process or finished goods is held;

  1. to facilitate the production process by both ensuring that supplies are at hand  when needed and allowing a more even rate of production and
  2. 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.

Inventory Management

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.

Inventory Stockpiling

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.

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