Inventory is dificult to manage for the following reasons:
It takes the longest duration to get converted into cash as it
has to undergo transformation first into finished goods, then to
receivables and then to cash.
As its procurement takes time, it has to be bought and stored
in advance so that production is not interrupted.
The investment in inventory is idle and it incurs holding and
carrying costs.
Determining the optimum level of inventory depends on many
variables affecting the demand for and supply of the inventory
items.
Inventories are subject to risks of deterioration in quality,
risks of physical loss, risk of obsolescence, etc.
While managing inventory one has to balance between the stock
out costs and the costs of carrying inventory.