Immediate effect on the investment level of Inventory

AG1999 wrote:Sir,

Which of the following is least likely to immediate effect on investment level of inventory ? The options are: 1) Efficiency of inventory management in the warehouse 2) Lead time of the supplier 3) Speed of the production process 4) Credit term agreed with suppliers Which one is least likely one sir?

The credit term agreed with suppliers is the lest likely to have an immediate effect on inventory. (more efficient inventory management will affect the level of investment in inventory) If this was a question in the last real exam, then please do not ask me any more because I have not yet seen the exam :-) (And whether you got the answer right or wrong is obviously now irrelevant anyway.)

If i am not wrong The credit term is most likely bcuz if the credit term of the supplier is bad then company have to keep high amount of inventory to reduce the risk of the stock out and vice versa

That is not true. The credit terms are simply how long the supplier is prepared to wait for payment. It does not affect how much inventory the company decides to hold.

Then a good credit term denotes that the supplier is prepared to wait for the payment for a longer period right sir

Correct, but again it does not affect the level of inventory that they decide to hold :-)

Thanks for the clarification sir

You are welcome :-)