Corollary, a word that one encounters many times in the engineering studies. Like the Fick’s Law for Diffusion, Newton Law for Momentum Transfer or Fourier Law for Heat Transfer.
Do not worry if you do not know these laws, I have no intention to talk about these laws. The point I am trying to make is that there exists some basic fundamentals in all streams upon which the rules are built. We can easily visualize one concept in terms of another one that we have already studied earlier and it becomes easier to digest.
After such a long time, I recently found another corollary in management discipline and though not extremely helpful, I felt good in founding the analogy. Let me start with Operations Management and the concepts of inventory management. The key aspect is that the inventory should be minimal possible because it is a capital blocked with no returns. But it is required to tackle the uncertainty in the operations arising due to market or processes. If there is a sudden increase in demand you can push more products into the market by utilising the inventory of finished goods and at the same time you can increase the throughput utilizing your raw materials inventory. So you keep inventory at various levels. If everything is predictable, one does not require the inventory. Do not worry I am not going into more detail!
Now comes the Macroeconomics. You have deposits with the bank and then you have deposits (reserves) with the central bank. The more reserves in central bank, more capital is blocked with no returns. The more deposits available with the bank, more money it can lend to the market forces for investments/operations/production. Reserves with Central Bank are like buffer kept for unforeseen demand/supply. So if everything is stable in the market, the reserves maintained by the central bank are of no use. To meet the daily transaction requirement with customers banks also keep cash with them in their vaults which again yield no return as such.
So you see corollary here. The Reserves with Central bank are nothing but an Inventory of money to provide for uncertainties in the money market. I wonder if Dimensional Analysis can be applied to the management science discipline.
