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 ...

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