What Is Inventory Optimization?
In a simple sense, inventory optimization is what you get when you strike the perfect balance between having enough inventory to satisfy your customer service standards while stocking as little inventory as possible. Customer service standards involve meeting demand—but not past the point that you have too much.
But inventory optimization gets complicated when supply and demand are constantly in a state of flux across a sizable number of SKUs. The larger the complexity, the bigger the challenge.
Why Does Inventory Optimization Matter?
The answer is based on the ultimate goal of every business: maximized profitability. For many businesses, inventory is often the single largest asset on the balance sheet. When there is a significant amount of working capital at stake, even the smallest percentage improvement can translate into significant savings.
Truly informed businesses recognize that they will not maximize profitability if they do not meet customer demands due to key items stocking out, while other items gather dust.
Experienced executives know how to ferret out where their biggest business issues are and then determine how to make improvements.
Finally, truly informed businesses can envision that there can be a better way, somehow. They listen to others, track industry trends, keeping their sights on their best areas to improve the bottom line. Because their inventory uses so much of their working capital and impacts both revenue and profitability, they actively seek and look forany new developments around best practices and technology for inventory optimization.