IntroductionWe all hold money, and one wonders if we all know the reasons we hold it. Economics objectively gave us three reasons why we keep money, and they are: the precautionary motive, the transactional motive and the speculative motive (Keynes 1923). Like money, companies keep inventory for these reasons stated above and even more. Inventory management is the act of keeping track of the quantity of material and number of item that should be and are presently in inventory at any time; supplies data required by other diameters of manufacturing cycle and links manufacturing to costing, book-keeping and general manufacturing. Inventory management, also often referred to as inventory control, can be referred to as the actual steps taken to maintain proper stock level in raw materials and finished goods (Adejuyigbe 2002).Over the years, inventory managers have been faced with the questions of how to monitor the inventory, how much should be ordered and when orders should be placed. This has led to the development of various models aimed at providing viable answers to the questions of inventory managers. The methodology for modelling inventory situations is straightforward and three simple steps are involved (Adam and Ebert 1982): 1. Examine the inventory situation carefully, listing characteristics and assumptions concerning the situation. 2. Develop the total annual relevant cost equation. 3. Optimise the cost equation to find the optimum for how much to order (order quantity) and when to reorder (reorder point).
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