In this chapter, we present some of the factors that influence inventory management practices. In the first section, we discuss different ways to measure inventory. We then discuss the main costs of holding inventory, such as carrying and shortage costs, and the most common method for managing inventory. Among the latter, we present a brief discussion of the best‐known approach for managing inventory, namely, the economic order quantity model. Finally, we discuss the use of inventory for hedging purposes and additional considerations related to optimal inventory levels.
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