inventory levels and costs are closely monitored in most operating environments, particularly where there is a high reliance on this inventory to ensure continued cash flow for the business.

1. Precisely what does the EOQ formula tell us? What assumption is made about the usage rate for inventory?

2. Why might a firm keep a safety stock? What effect is it likely to have on the carrying cost of inventory? Provide a numerical example?

3. If you were the CEO of Toyota and are experiencing hold ups in your auto production due to shortages in electronic modules what actions would you take regarding inventory management?