11.2 GOAL OF INVENTORY MANAGEMENT

Since inventory management is fraught with both costs and benefits, a finance manager must make a trade-off between the two so as to maximise the value of the firm. To be precise, he or she must take into account four important points. They are as follows:

  1. Inventories should be grouped according to their importance and special care should be taken of more important items;

     

    Break-up of Inventory among 1,377 private limited companies in India

    Source: RBI Bulletin, Mar. 2007.

     

  2. The size of the order for inventories should be economic so as to minimise the total cost;
  3. The re-order point needs to be determined ...

Get Fundamentals of Financial Management, Third Edition now with the O’Reilly learning platform.

O’Reilly members experience live online training, plus books, videos, and digital content from nearly 200 publishers.