Hedge inventory finds its roots in the term ‘hedging’. Hedging which means reducing or controlling risk is a common practice in many industries and a not so common one in others. Hedge inventory is actually very similar to anticipation inventory, except there is more risk and quite a bit less certainty in increased demand and decreased supply.
Hedge inventory is the excess inventory that is purchased in advance or held in stock as a protection against price increases. The main objective of hedging is reducing or limiting any risk associated with future price fluctuations. A secondary objective of hedging is to take advantage of future price fluctuations.
Examples of Price Fluctuations:
Example of Hedging:
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