THE INVENTORY INVESTMENT DECISION AND FIRM VALUE - A CONCEPTUAL-FRAMEWORK

Though a wide range of complex and sophisticated models exist in the literature, most real world inventory decisions are made on the basis of single parameter, cost minimization models. The purpose of this paper is to suggest a conceptual framework which mid- and upper-level, production managers may use in evaluating the inventory investment decision within a multiparameter context. This approach views the inventory investment decision as a series of problems to be resolved using a wide range of tools, many of which are borrowed from different functional area applications. All decisions are made within the context of firm valuation using a standard risk/return format. By approaching the decision in this way, it is possible for the manager to move closer to optimal decision making and to add greater value to the firm.