You're faced with managing inventory costs and levels. How do you strike the right balance?

2 Optimize Levels

Once you have a grasp on demand, the next step is to determine the optimal inventory levels. This involves calculating the reorder point—the level at which new stock should be ordered—and the economic order quantity (EOQ), which is the ideal order size to minimize total inventory costs. The EOQ balances ordering costs, which decrease with larger orders, against holding costs, which increase with larger inventories. Implementing an inventory management system can help automate these calculations and maintain optimal stock levels.

3 Reduce Costs

Reducing inventory costs without compromising product availability is key to maintaining profitability. Consider strategies such as just-in-time (JIT) inventory, which reduces holding costs by receiving goods only as they are needed. Another approach is to negotiate better terms with suppliers, such as volume discounts or longer payment terms, which can lower the cost of goods sold (COGS). Regularly review your inventory turnover rates to identify slow-moving items that may need pricing adjustments or promotions to clear out.

4 Leverage Technology

6 Continuous Improvement

Finally, inventory management is not a set-it-and-forget-it task. It requires ongoing attention and continuous improvement. Regularly review your inventory performance metrics, such as turnover rates, carrying costs, and service levels, to identify areas for improvement. Stay informed about new techniques, tools, and industry best practices to refine your approach. By continuously optimizing your inventory management processes, you can adapt to changing business environments and maintain a competitive edge.

7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?