1. Increase in the size of manufacturing units: With the increase in the size of manufacturing units, there is a necessity to have sufficient inventory control so that increasing inventories do not become non-value added expenditure. In fact, increasing inventory can erode the profits of the company and the possibility of inventory control arises.
2. Wide variety and complexity of the requirements: The requirements of the modern industry have necessitated the need for conscious inventory management.
3. High idle time cost of machine and men: If men and machines are kept idle, it is highly uneconomical for the firm. Inventory levels have to be managed keeping this factor in mind.
4. Liquidity: There is an increased stress on liquidity in today‘s organizations, where it becomes a necessity to maintain liquidity at the levels of nearly 10-20 per cent of the total capital invested in finished goods.
