Should We Reduce Inventory?
Response to the following problem:
It has now been two years since you advised Mr. Eddie to switch to the perpetual inventory method. He is very happy with the additional information he has about inventory levels and theft. He has hired you for advice once again. This time, Mr. Eddie has been to an inventory management seminar where he heard that most companies have too much money tied up in inventory. He wonders if his company could be much more profitable if it reduced its inventory levels. What would you tell him?