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The objective of inventory management is to determine the optimum level of inventory i.e., the level at which the interest of all the department are taken care of. The inventory  seeks to maximize the wealth of the shareholders by designing and implementing such policies which attempt to minimize the cost of procuring and maintaining the inventories. The purpose of carrying inventory is to uncouple the operations of the firm i.e., to make each function of the firm independent of other functions so that delays in one area do not affect the production and sales activities. As the production shuts down results in increased  costs and because the delays in delivery can result in loosing the customers, the management and control of inventory is an important dimension of the duties of the financial manager. Inventory management assumes significance in any firm and it is of great concern  to any financial manager. Though the inventory is more directly related to production and marketing departments, still the financial manager has to play an active roll in the management of inventory.

Any firm will like to hold higher level of inventory. This will enable the firm to be more flexible in supplying to the customer and will ease in production schedule. Most of the customer require immediate delivery and higher inventories may help meeting their demands, and would be less and less chances of sales being disrupted. But there ids always a cost involved in the inventories. This cost include the capital cost of the stock and the cost of storing  and carrying etc. On the other hand, holding lower level of stock than required may result in stock-outs or holds-ups in the production process.

Given the benefits of holding inventories and cost of stock-outs, a firm will be tempted to hold maximize possible inventories. But this is costly too, because the funds blocked in inventory always have an opportunity cost. So, every firm is required to manage the inventories in such a way as to get the best return thereof.  It must weigh the benefits of holding the inventory against its opportunity cost. While achieving the optimum level of inventory, a financial manager has to reconcile the differing views points of production department , marketing department and the finance department. Most of the decision relating to inventories are taken by the purchase department in consultation with the production department, still the finance manager should ensure that the inventories are properly controlled and he should stress the need for the consideration of financial implications of inventory management.  

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