Optimal Ordering Policy for Inventory System

“Inventory for many small business owners is one of the more visible and tangible aspects of doing business. Raw materials goods in process and finished goods all represent various forms of inventory. Each type represents money tied up until the inventory leaves the company as purchased products. Likewise merchandise stocks in a retail store contribute to profits only when their sale puts money into the cash register. In a literal sense inventory refers to the stocks of anything necessary to do business. These stocks represent a large portion of the business investment and must be well managed in order to either maximize profits or minimized the cost. In fact many small businesses cannot absorb the types of losses arising from poor inventory management. Unless inventories are controlled they are unreliable inefficient and costly.