The natures of the production process the product design and production planning and plant layout have signification affect on inventory policy.

a. Degree of Specialization and Differentiation of the products at various stages: The degree of changes in the nature of the product from raw materials to final product at various stages of transformation viz, final assembly, assembly and packing determines the nature of inventory control operation for example f nature of product remains more or less same at various stages of production then economics can be achieved by keeping the right balance of stock of semi finished product.

b. Process Capability and Flexibility : Process capacity is characterized by processing time of various operations e, g, the replenishment lead time ( length of delay in execution after issuance of a replenishment order) directly influences the size of inventory.

Similarly how rapidly and economically a system can adjust is production rate, shift production facilities from one operation to another and change equipment from one product to another determines the magnitude of flexibility. Inventory policy should towards balancing the production flexibility capacity inventory levels and customer service needs.