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Explain why inventory costs and inventory levels have declined relative to GDP over the last twenty years. Is this beneficial to the economy Why or why not - Essay Example

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Explain why inventory costs and inventory levels have declined relative to GDP over the last twenty years. Is this beneficial to the economy Why or why not
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Extract of sample "Explain why inventory costs and inventory levels have declined relative to GDP over the last twenty years. Is this beneficial to the economy Why or why not"

Logistics Explain why inventory costs and inventory levels have declined relative to GDP over the last twenty years. Is this beneficial to the economy? Why or why not?
Over the last twenty years, the logistics industry has witnessed a shift from the traditional management approaches. Therefore, there has been greater inventory management expertise, increased information technology innovation, high competitiveness in transportation business and cost reduction through eliminating activities that do not add value (Coyle, Langley, Gibson, Novack & Bardi, 2012). These advancements have caused a reduction in the number of physical items to be distributed, as such a reduction in inventory level. In the same way, these advancements have reduced, and in some cases eliminated, inventory carrying costs, in-transit inventory carrying cost and order cost, thus an overall reduction in inventory cost. According to Coyle et al. (2012), inventory is an asset because in measuring gross domestic product, GDP, the value of goods and services an economy produces would be considered. Thus, a reduction in this asset reduces the return on assets, ROA which in essence means a reduction in the GDP. As such, as inventory costs and levels have declined over the past twenty years, so has the GDP.
No, this is not beneficial to the economy. As noted by Coyle et al. (2012), GDP is a critical factor of the wellbeing of an economy. This is directly dependent on the level of spending in the economy. With the advancements in technology that has cut on inventory costs and generally on costs in supply chain, the level of spending by logistics organizations, and ultimately on consumers, has decreased. The resultant decrease in GDP has negatively impacted on the economy.
Reference
Coyle, J., Langley, C., Gibson, B., Novack, R. & Bardi, E. (2012). Supply chain management: A logistics perspective (9th ed.). Mason, OH: South-Western Cengage Learning. Read More
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