Economic Order Quantities

Issues of inventory planning and control are consistently top of mind in a large percentage of businesses. The importance of every aspect of inventory management in those companies is pervasive in day-to-day operations. It is necessary for them to develop policies that will achieve an optimal inventory investment. In many businesses inventory is the largest component of current assets and may well be one of the largest assets. It is important to determine the best inventory level related to the business activity to minimize investment and other cost related to inventory and risk. Too much inventory misallocates a companys resources. Cash is tied up so liquidity is reduced and no interest earned. There are carrying costs, depreciation and hidden assessments besides the evident cost of the goods themselves.