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Historically, governments have maintained large stores of inventory. In the private sector, it is generally assumed inventory holdings should not normally exceed the amount required to meet anticipated requirements during the current year.
The primary purpose of inventory is to prevent an out-of-stock problem from arising. It is therefore necessary to be able to project both probable and extraordinary requirements for materials and the general pattern of demand. Even so, there is a clear limit on the benefit of an extensive inventory holding and the record indicates too little supervision is exercised to determine when the optimal level of inventory is on hand.
The longer that inventory is held the greater the risk that it will become obsolete, perish due to natural aging or become stale, be broken, misplaced, stolen or simply become surplus to eventual requirements. In terms of the determination of need, it is obviously unwise to place an order for new materials when there are existing materials in stock which are fully capable of addressing the requirements of the ordering department.
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