Operations Management: Sustainability and Supply Chain Management, Twelfth Edition

The Importance of Inventory

As Amazon.com well knows, inventory is one of the most expensive assets of many companies, representing as much as 50% of total invested capital. Operations managers around the globe have long recognized that good inventory management is crucial. On the one hand, a firm can reduce costs by reducing inventory. On the other hand, production may stop and customers become dissatisfied when an item is out of stock. The objective of inventory management is to strike a balance between inventory investment and customer service. You can never achieve a low-cost strategy without good inventory management.

All organizations have some type of inventory planning and control system. A bank has methods to control its inventory of ...