Inventories constitute a important portion of the current assets ranging from 40 percent to 60 percent for manufacturing companies. The manufacturing companies conduct investments in the form of raw material, finished goods and work in processes. The three major motives for holding inventories are precautionary, speculative and transaction. The different factors that need to be considered whereas formulating inventory policy are as:

(a)  Costs

(b) Returns

(c)  Risk Factors.

There are two categories of costs related with inventory maintenance that are:

 (a)  Ordering Costs

(b) Carrying Costs.

The Economic Order Quantity (EOQ), order quantity that minimizes the sum of ordering and carrying cost. The inventory level at that the firm places order for additional inventory is identified as reorder point and it based on:

a. Lead time

b. The usage rate.

There are various inventory control systems; the most broadly used one is ABC and FSN System.