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090982 1 (1973-01-01)

handle is hein.gao/gaobaduzx0001 and id is 1 raw text is: ARNET E. BURROW AND LARRY E. HODGES Economics of Inventory Control Inventory control is important to management in almost all enterprises, including Government operations which are financed with public funds. This article discusses mathematical and quantitative methods oj helping managers in this important function. The goals of inventory management are to: -provide stock to users when and where it is needed, -keep investment in inventory low, and -obtain the lowest available prices for items purchased, quality con- sidered. The second goal conflicts with the first and the third. Buying in large quanti- ties reduces the probability of stock- outs, reduces the cost of placing and receiving replenishment orders, and tends to result in lower prices and transportation costs. But the larger quantities tend to increase investment and the cost of holding the inventory. The inventory manager must seek a balance between the costs of holding inventory, ordering additional quanti. ties, and running out of stock in de- ciding: -when to acquire additional stock and -how much to acquire. Each of these decisions involves risks. Both require forecasts of future de- mand and leadtime to acquire addi- tional stock. Such forecasts are seldom free of error. Demand usually varies from month to month and delivery time from order to order. If he is to achieve a reasonable balance between the costs, the manager must assess the probability of an error in his forecast- ing and provide for it. The Structure of Inventory Systems Knowledge of the properties of a Mr. Burrow, assistant manager of the Kansas City regional office, has previously contributed to The GAO Review. He is a CPA (MiEsouri) and a member of the Missouri State Society of CPAs. Mr. Burrow joined GAO in 1953. Mr. Hodges is a member of the Systems Analysis Staff of the Division of Financial and General Management Studies. He has been with GAO since 1969, beginning with the Kansas City regional office. He holds a Master's degree in mathematics from Kansas State College and is a member of The Institute of Management Sciences.

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