Inventory Management: Reasons, Costs, and Review Systems, Study notes of Introduction to Business Management

The reasons for maintaining inventory, the associated costs, and the two common inventory review systems: continuous and periodic. Reasons for inventory include covering unexpected changes in demand and supply, economic production runs, smoothing production rates, hedging against price increases, reducing ordering expenses, and providing transit. Inventory costs consist of item cost, ordering cost, carrying cost, stockout cost, and opportunity costs. The continuous review system tracks withdrawals from inventory on a continuous basis, while the periodic review system counts inventory at periodic intervals. Advantages and disadvantages of each system are also provided.