The Value of Inventory Savings

Despite the almost universal belief to the contrary, inventory reduction should not be a major objective for investing in advanced manufacturing technology because the financial benefits from it can be relatively small compared with other benefits. This article describes how changes in inventory are valued and why inventory reductions can have a complex, and often negative, effect on profitability. High inventory levels are only a symptom of other problems; if these problems are not first identified and solved, inventory reductions can be counterproductive.