Inventory is any stored resource
that is used to satisfy a current or a future need. Raw materials, finished
goods are exa mples of inventory. The inventory problem involves placing and
receiving orders of given sizes periodically so that the total cost of inventory is
1. How much to order ? 2. When to order ?
The cost associated with carrying
or holding the goods in stock is known as holding cost per unit per unit time.
The penalty costs that are
incurred as a result of running out of stock are known as shortage cost.
This is the cost incurred with
the placement of order or with the initial preparation of production facility
such as resetting the equipment for production.