Fluctuation inventory, as implied, is designed to meet uncertainty on the demand
side, for example peak and seasonal demand and also demand which is random or
irregular. Lot-size inventory refers to the general inability to meet constant demand
with a constant rate of production. Usually production rate is much greater than the
demand rate and hence inventory reaches a maximum level at the end of a production
run. Similar considerations apply to the transportation of a batch of items from a
central warehouse to a depot in the field when the capacity of the mode of transport
used will determine the extent to which the depot inventory will be suddenly increased.
Finally, a category of inventory may be recognised which may be viewed as being
speculative in nature. For example if demand suddenly and unaccountably falls away,
an organisation may decide not to cut back production, with perhaps a reduction
in the labour force, but to continue for the time being to manufacture for stock in the