Question

What factors would influence the inventory levels for a company?  How would one determine the optimum level?

Answer 1

Some factors that influence inventory levels for a company-

1. Cost of warehouse and keeping inventory influence inventory levels if cost is increasing, company decreases inventory levels to reduce the warehouse and carrying cost.
2. If goods are perishable and can stale soon, inventory level of these products will be very less. So nature of goods also influence the inventory level of the company.
3. Suppliers play a great role in managing the inventory level, if suppliers are reliable and can deliver the stock in short notice then less stock will be kept for the goods if suppliers are not reliable and can delay the supply of goods then company has to keep higher inventory. So lead time influences the inventory levels.
4. Sometimes inflation also influence the inventory level, if company thinks that prices of particular product will go up then it keep higher inventory for that product and vice versa.