## Management of Inventory

Inventories constitute a major element of working capital, so investment in inventory must be properly controlled.

### Why it matters

The objectives of inventory management are, to a great extent, similar to the objectives of cash management — balancing the cost of holding against the cost of running short.

### What inventory management covers

Inventory management deals with a large number of inter-related problems:

Fixation of minimum and maximum levels
Determining the size of inventory to be carried
Deciding about issues, receipts and inspection procedures
Determining the Economic Order Quantity (EOQ)
Arranging proper storage facilities
Keeping a check over obsolescence
Ensuring control over movement of inventories

> Note: Inventory Management is discussed in detail in the Material Cost chapter of Paper 4 (Cost and Management Accounting). The same techniques (EOQ, stock levels, ABC analysis) apply here in the FM context.

⚠️ Common exam mistakes

Treating inventory management as unrelated to cash management — both share the same core objective of optimising the trade-off between holding cost and shortage/stock-out cost.
Forgetting that detailed inventory techniques (EOQ, stock levels) are covered in the Cost Accounting paper and are examinable in the working-capital context too.

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Management of Inventory (Overview)

⚠️ Common exam mistakes