Dynamics of Inventory Cost Optimization – A Review of Theory and Evidence

Abstract

The inventory control models as an estimation tool for optimizing inventory cost and management of inventory is discussed in this paper. Various methods of estimating the Economic Order Quantity (EOQ), Safety Stocks under deterministic and stochastic situations are reviewed. Traditional methods of managing inventory such as accounting ratios analysis, two bin systems, perpetual inventory system and some others form part of this paper.

Ratings of inventory or its classification in order of priority by unit and consumption value are also reviewed in the paper. Empirical evidence reviewed in this work tends to support the opinion that modern method of inventory control is far more effective and efficient than the traditional methods of control.

Keywords: Inventory Control Models, Inventory Ratios, Economic Order Quantity.