Fundamentals of Financial Management, Third Edition

11

Inventory Management

OBJECTIVES

To delineate the costs and benefits of holding inventory

To explain the goals of inventory management in terms of classification of inventory and determination of economic order quantity, re-order point and safety level of stock

To explain what JIT system of inventory management actually means

Inventory, as you know, means raw material, semi-finished goods and finished goods. It accounts for the largest segment of investment in the current assets; and so, its proper management is of utmost significance. The management of inventory involves primarily:

1. Its classification based on its value, volume and importance
2. Determination of an economic size of order
3. Decision of the re-order point
4. Establishing a safety ...