NEED TO HOLD INVENTORIES

Martin and miller identified three general motives for holding inventories

TRANSACTION MOTIVE:

This refers to the need of maintaining inventory to facilitate smooth production and sales

operations.

PRECAUTIONARY MOTIVE:

Precautionary motive for holding inventory is to provide a safeguard when then actual level

of activity is differ than anticipated. This inventory serves when there is a unpredictable changes

in the demand and supply forces.

SPECULATIVE MOTIVE:

This motive influences the decision to increase or decrease the levels of inventory to take the

advantage of price fluctuations.