The amount of inventory an organization holds depends primarily on which two factors?

The amount of inventory an organization holds significantly depends on physical quantities and cost. Physical quantities refer to the amount of stock that needs to be maintained to meet demand while accounting for aspects such as lead times and safety stock levels. This ensures that there is enough inventory on hand to meet customer needs without delays.

Cost is another critical factor as it influences how much inventory a company is willing to maintain. This includes direct costs related to purchasing the inventory, as well as indirect costs such as warehousing, handling, and obsolescence. Organizations often aim to strike a balance between holding enough inventory to satisfy demand and minimizing costs associated with excess inventory.

While factors like product quality, supplier reliability, market trends, consumer feedback, employee efficiency, and machine uptime can impact inventory management, they don’t directly dictate the quantity and cost considerations that form the basis of inventory decisions. Therefore, focusing on physical quantities and cost provides a more accurate framework for understanding inventory levels in an organization.