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Working Capital Management$
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Lorenzo Preve and Virginia Sarria-Allende

Print publication date: 2010

Print ISBN-13: 9780199737413

Published to Oxford Scholarship Online: May 2010

DOI: 10.1093/acprof:oso/9780199737413.001.0001

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Managing Inventories

Managing Inventories

Chapter:
(p.86) 7 Managing Inventories
Source:
Working Capital Management
Author(s):

Lorenzo A. Preve (Contributor Webpage)

Virginia Sarria-Allende (Contributor Webpage)

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199737413.003.0007

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.

Keywords:   corporate finance, working capital management, inventory management, shortage costs, holding costs

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