Business – 10.2 Analysis of published accounts – Financial efficiency ratios | e-Consult
10.2 Analysis of published accounts – Financial efficiency ratios (1 questions)
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Just‑in‑time inventory management can have a significant impact on a firm’s financial efficiency, but it also carries risks.
- Advantages
- Reduces holding costs (storage, insurance, obsolescence).
- Minimises capital tied up in stock, freeing cash for other uses.
- Encourages stronger supplier relationships and more responsive supply chains.
- Improves inventory turnover ratios, signalling efficient operations.
- Disadvantages
- Increases vulnerability to supply chain disruptions (e.g., delays, strikes).
- Requires highly reliable suppliers and accurate demand forecasting.
- May lead to higher ordering costs due to more frequent purchases.
- Potentially reduces flexibility to meet sudden spikes in customer demand.
Overall, JIT can boost financial efficiency by lowering inventory‑related expenses, but firms must weigh these gains against the heightened risk of stockouts and the need for robust supply‑chain coordination.