Inventory Optimization

In my opinion optimization means maximizing the return at a given risk level or risk is minimized for a given expected return.  The two key elements that dominate the meaning of optimization are the risk and ROI.  Now Inventory Optimization means maintaining a certain level of inventory that would eliminate the out-of-stock situation and at the same time the cost of carrying inventory is not detrimental to the bottom-line (ROI).  In simple inventory optimization means balancing demand and supply.

Inventory is the largest single asset that most companies have. Unfortunately, it consumes space, gets damaged, and sometimes becomes obsolete and carrying surplus inventory costs the organization.  Despite well-documented studies that have proven a 77% correlation between overall manufacturing profitability and inventory turns, manufacturers and traders by and large have acted with ignorance and carried excess inventory to please customers.  Today’s customer thinking is totally different and they suffer from problem of plenty and the gratification is instant.  They do not have patience to wait for the product, they don’t mind considering other brands with the same product features and most of the time they may buy the product if they are convinced that the product would meet

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3 thoughts on “Inventory Optimization

  1. Hi! The data you put about cycle vs safety stock is very interesting. You mention that the source for those data (“average safety stock varies between 10% and 30% of monthly sales by industry and segment. Cycle stock ranges from 85% to more than 190%. This is based on the report”). Is the report available or would be possible for you to provide source data?

  2. Hi I just want to ask if do you have statistics or data about common problems that company experienced regarding inventory management?

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