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Working capital management – Inventory control

1.3 The challenge

The objective of good inventory management is therefore to determine:

The optimum re-order level (ROL) – how many items should be left in inventory when
the next order is placed, and

The optimum re-order quantity (EOQ) – how many items should be ordered when the
order is placed

In practice, this means striking a balance between holding costs on one
hand and stock out and re-order costs on the other.

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