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Unformatted text preview: rces the firm to consider its
inventory needs more carefully. The objective is to lower the firm’s inventory
investment without impairing production. If the firm’s opportunity cost of capital
for investments of equal risk is 15 percent, every dollar of investment released
from inventory increases before-tax profits by $0.15. International Inventory Management
International inventory management is typically much more complicated for
exporters in general, and for multinational companies in particular, than for
purely domestic firms. The production and manufacturing economies of scale
that might be expected from selling products globally may prove elusive if products must be tailored for individual local markets, as very frequently happens, or
if actual production takes place in factories around the world. When raw materials, intermediate goods, or finished products must be transported long distances—particularly by ocean shipping—there will inevitably be more delays,
confusion, damage, theft, and other difficulties than occur in a one-country operation. The international inventory manager therefore puts a premium on flexibility. He or she is usually less concerned about ordering the economically optimal
quantity of inventory than...
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