What is inventory optimization?
Keeping inventory at an appropriate level while securing supply, reducing the risk of both excess stock and stockouts.
In detail
Inventory optimization usually starts with classification: grouping items into A, B and C classes by sales volume and value, and focusing on the few that contribute most; then combining demand forecasts, purchasing lead times and safety stock to set a sensible stock level for each class.
For example
Analysis shows that 20% of items generate 80% of revenue; the company replenishes these items more often and clears out items that have not moved for a long time.
How companies use it
Regularly check inventory turnover and slow-moving stock, and review the results with purchasing and sales.
Common misconceptions
Focusing only on cutting stock. If stock is pushed too low, losses from stockouts can outweigh the capital costs saved.
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