Financial manager's role in inventory management

The techniques of inventory management are very useful in determining the optimum level of inventory and finding answers to the problems of the economic order quantity, the re-order point and the protection stock. The methods are very essential to economies the use of resources by minimizing the total inventory cost. Although out treatment of inventory management has been simple, it indicates the broad framework of managing inventories. Many sophisticated techniques have been evolved to handle inventory management problems more efficiently and effectively and the improvements are still continuing. For the majority of the companies, inventory represents a substantial investment. Thus, the goal of the wealth maximization is related to the efficiency with which inventory is managed. Consequently, the financial manager has an important role to play in the management of inventory, although it is not his operating responsibility to control inventory. The financial manager should see that only an optimum amount is invested in inventory. He must be familiar with the inventory control methods and ensure that inventory is managed well. He must introduce the policies that reduce the lead time, regulate usage and therefore, minimize safety stock. The total effect would be to decrease inventory investment and increase the firm's prospects of making more profits.