Cycle inventories are held for the reason that purchases are usually made in lots rather than the exact amount which may be needed at a point of time. Of course if all purchases are made exactly as and when the item is required there would be no cycle inventories. But practically purchases are made in lots the reason being that if purchases are made frequently and in small number then the cost involved in obtaining the items would be very large.

Inventory Decisions: In an inventory control situation there are three basic question to be answered. They are:

a. How much to order ? that is to say what is the optimal quantity of an item that should be ordered whenever an order is placed ?

b. When should the order be placed ?

c. How much safety stock should be kept?