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With raw materials, the schedule and reliability of your suppliers drives how much you keep on hand.The price of some materials fluctuates, and you may get discounts for buying certain materials in bulk. For each category, consider the reliability of your suppliers. The levels of stock you keep may vary depending on the type of stock.

Learn how the type of stock influences how much you need to store. You also assume a price risk if purchases go down in price versus the price of your inventory (but make gain if prices rise). However, you may have to pay for storage, and items may expire or become outdated before you can use them. Keeping a lot of stock on hand means you may be able to save money by buying materials in bulk, and you never have to worry about running out of materials.This also means your costs are related to the latest prices, since every purchase reflects the current price and the purchased inventory is quickly used up. However, you must have reliable suppliers, and you also run the risk of running out of materials in the midst of production. Keeping little or no stock on hand saves you money in storage costs and allows you to always use the most up-to-date components.Each method has advantages and disadvantages. Alternatively, you can choose to keep a lot of stock on hand and store what you are not using currently. You can choose to keep small amounts of stock on hand and have it delivered as you need it. Understand the advantages and disadvantages of holding on to inventory. This article has been viewed 131,214 times. In this case, several readers have written to tell us that this article was helpful to them, earning it our reader-approved status. WikiHow marks an article as reader-approved once it receives enough positive feedback. There are 7 references cited in this article, which can be found at the bottom of the page. Mack Robinson College of Business and an MBA from Mercer University - Stetson School of Business and Economics. She holds a BS in Accounting from Georgia State University - J. Keila spent over a decade in the government and private sector before founding Little Fish Accounting. With over 15 years of experience in accounting, Keila specializes in advising freelancers, solopreneurs, and small businesses in reaching their financial goals through tax preparation, financial accounting, bookkeeping, small business tax, financial advisory, and personal tax planning services. Keila Hill-Trawick is a Certified Public Accountant (CPA) and owner at Little Fish Accounting, a CPA firm for small businesses in Washington, District of Columbia. This article was co-authored by Keila Hill-Trawick, CPA.