To reduce the undesirable incentives to build up inventories management can institute planning, budgeting, and other controls.

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Planning, budgeting, and other controls can help management ensure that inventories are kept at appropriate levels and not excessively built up. This can reduce the negative incentives associated with over-building inventories, such as the costs of storage and obsolescence, as well as the opportunity costs of tying up working capital in inventory that could be used for other purposes.

To Reduce the Undesirable Incentives to Build Up Inventories Management