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Zero Inventory

Zero inventory is the technique which is used by businessman for reducing the cost of inventory and increasing the cash flow. In simple word, to keep zero stock for selling purpose will be called zero inventory. But this decision is taken carefully.

There are two risks which are associated with the zero inventory technique. 

1. Delay in Supply Risk 

For example, there is big distance between your supply line and actually delivery point, then, there is risk of delay in delivery. Due to this, you can lose your customer forever. So, this is risk of your loss of your overall return. If you do no use zero inventory, you can supply without delay.


2. Delay in Production Risk

If you are producing your own stock, production may be delayed due to uncontrolled factors. For example, there is shortage of laborers. So, some produced inventory is necessary everytime for supply to customers.


There are two benefits which are associated with the zero inventory technique. 

1. Zero Investment in Inventory

When we have decided not to keep any stock. Only supply or produce on the order, we can save our investment from inventory. For example, we have bought the stock of $ 10,00,000 but whole one year, we could not sell. So, it is the wastage of our big investment. Same investment, we can invest other sector and grow our business.

2. More Cash Inflow

With zero inventory in hand, we can get more cash inflow. Same cash inflow, we can use for paying other important expenses. We can use same cash inflow for buying good on cash for selling. With this, our goodwill will increase in the market. People can trust on us. With this, our overall worth will increase.


Analysis

Whether we should use or not use zero inventory, we should take the help of accounting records and current situations. If supply line is so near, we need not buy and storage. We just get and deliver. For example, all big e-commerce websites are following zero inventory technique. They do not buy anything. They just have given the login id to sellers. Every seller maintain their stock in same website whether it is amazon or flipkart. They have made their business model  in such a way. When any seller see the bought item on same website. Seller supply. Seller also show out of stock inventory. With this, e-commerce website owner save their investment from inventory.

Remember : Instead of zero inventory technique, EOQ model is best.


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Accounting Education: Zero Inventory
Zero Inventory
Accounting Education
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