In the operations management literature the question of how much inventory a firm
should keep has been extensively studied but there is dichotomy in the views given
that inventory is both an asset and a liability. Too much inventory consumes physical
space, creates a financial burden, and increases the possibility of damage, spoilage and
loss. Further, excessive inventory frequently compensates for sloppy and inefficient
management, poor forecasting, haphazard scheduling, and inadequate attention to
process and procedures. In this context the lean production principle pioneered by
Womack et al. (1990) has been linked with reduced level of inventories (Rajagopalan
and Kumar, 1994; Herer et al., 2002; Wickramatillake et al., 2006) even if volatility of
demand may limit the application of this principle. On the other hand, too little
inventory often disrupts manufacturing operations, and increases the likelihood of
poor customer service. In many cases good customers may become irate and take their
business elsewhere if the desired product is not immediately available.