9-2 quantitative models
inventories serve as a cushion between production and consumption of goods. They exist in various forms: materials awaiting processing; partially completed products or components; and finished goods at the factory, in transit, at warehouse distribution points, and in retail outlets. At each of these stages, a sound economic justification for the inventory should exist, because each additional unit carried in inventory generates some additional costs.
Planning materials requirements
Materials planning deals with two fundamental factors the quantity and the time to purchase. Determination of how much and when to buy involves two conflicting kinds of cost the cost of carrying inventory and the cost of inadequate carrying. The nature of these conflicting costs is illustrated in the following comparison: