Deteriorating inventory models

Inventory is any kind of resource that is stocked to satisfy the present and future needs of any organization. Fred Hansman has defined Inventory as "An idle resource of any kind provided such a resource has economic value". Such resources may be classified into three categories : physical resources such as raw materials, semi-finished goods, finished goods, spare parts, lubricants etc, human resources such as unused labour and finance resources such as working capital etc. Inventory of resources is held to provide desirable service to users and to achieve sales turnover target. Though inventory of materials is an idle resource it is not meant for immediate use, but it is almost essential to maintain some inventories for the smooth and efficient functioning of an enterprise. Investment in large inventories adversely affect an organization's cash flow and working capital as investment in inventory represents substantial portion of the total capital investment in any business. Hence it is very much essential to balance the advantage of having inventory of resources and the cost of maintaining it so as to determine an optimal level of inventory of each resource.