ABSTRACT
We encounter an inventory problem whenever physical goods are stocked for anticipated demand. Inventory is oen necessary when there is uncertainty in demand. However, even when demand is known for certain, inventory is built up to satisfy large demands when production is time-consuming. Stocking can also be used as a strategy to take advantage of the economies of scale since suppliers oen oer discounts to encourage large orders and administrative costs can be saved by combining orders. Another critical reason for keeping high inventory is the loss of customer goodwill when shortages occur.
