![]() What level of additional inventory is optimal? They do not have the 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 their expectations. Today’s customer thinking is totally different and they suffer from the problem of plenty and the gratification is instant. 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. Unfortunately, it consumes space, gets damaged, and sometimes becomes obsolete and carrying surplus inventory costs the organisation. ![]() Inventory is the largest single asset that most companies have. In simple inventory optimisation means balancing demand and supply. Now Inventory Optimisation 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). The two key elements that dominate the meaning of optimisation are the risk and ROI. ![]() In my opinion, optimization means maximising the return at a given risk level or risk is minimised for a given expected return. ![]()
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