What is the primary objective of inventory management?

• A. Increase the frequency of stockouts to reduce storage costs.
• B. Eliminate the need for inventory in the production process.
• C. Maximize the amount of inventory held at all times.
• D. Minimize the total cost of holding and ordering inventory while ensuring adequate stock to meet demand.

Answer: (D)

Verified step by step guidance

1. Understand the concept of inventory management: Inventory management involves overseeing the flow of goods from manufacturers to warehouses and from these facilities to point of sale. It aims to balance supply and demand efficiently.
2. Recognize the primary objective: The goal is to minimize the total cost associated with holding and ordering inventory while ensuring there is enough stock to meet customer demand.
3. Analyze the incorrect options: Increasing stockouts reduces storage costs but risks losing sales and customer trust. Eliminating inventory in production is impractical as it disrupts operations. Maximizing inventory increases holding costs unnecessarily.
4. Focus on cost minimization: Inventory management seeks to optimize the balance between ordering costs (costs incurred to replenish stock) and holding costs (costs of storing inventory).
5. Ensure adequate stock levels: While minimizing costs, inventory management must also ensure there is sufficient stock to meet customer demand and avoid stockouts, which can lead to lost sales and operational inefficiencies.