Anticipation Inventory

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  Have you ever wondered, what does the word anticipation mean?  In this lecture, we will answer the question, what is anticipation inventory? 

  The word Anticipation is defined in one way as, “the act of preparing for something”.  In the case of Anticipation inventory it is the act of preparing for something with regards to inventory.  Formally defined,  Anticipation inventory is inventory that is  kept on-hand to account for or, anticipate, expected changes in demand.  Spikes in demand generally occur because of seasonality, inflation and deflation, holiday events, current events, political changes or other major trends.  Anticipation inventory is commonly referred to as:

• Speculation inventory.
• Smoothing inventory.

This is because it is bought in advance to avoid price increase or delays in time.  Keep in mind that anticipation inventory is a form of a buffer and therefore must be forecasted.  In these cases it is often a wise decision to use Inventory management software.
Why would a company use anticipation inventory?

• Let’s first think of a retailer increasing its stock of ice cream and cold drinks before summer to anticipate higher sales.  How about candy manufacturers who buy extra chocolate in advance of Valentine's Day.  Businesses also use anticipation inventory to hedge against expected bumps in prices, shortages of materials and of course inflation. 

What are the Downsides of anticipation Inventory?

• First and foremost carrying inventory costs a business money, so the business must always weigh inventory costs with other financial considerations.
• In addition to the purchase cost of the inventory, there are storage costs and possibly the costs of setting up needed equipment to handle the inventory you have on hand.
• Plus, we must always remember that any money invested in inventory will not produce any return until the inventory is sold.  To put it simply, inventory ties up capital and that means the money can not be used for other things.

Challenge:

• What examples of anticipation inventory can you think of?  Share your thoughts in the community, comments or upcoming assignments and receive a coupon for one of Lean Strategies International LLC's Training Courses.

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