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Optimal inventory management involves controlling merchandise from when stock levels require replenishment, until it is delivered to the customer.
And this happens through orders to suppliers, reception, control and storage, etc. For many types of businesses, stock control is key to their success. It is part of the supply chain.
Inventory management is a key area in the management of many micro and SMEs. It is an activity included, in some cases, as part of cost accounting.
We define it, in simple terms, as proper management of item registration and control. It includes operations such as purchase planning, monitoring and control of outputs.
What can happen if inventory management is not appropriate? It can lead to production interruptions or sales failures, which should be avoided as much as possible.
Situations like these don’t just have measurable costs. There are also, perhaps more impactful and not so easy to measure, such as loss of customer trust.
Inventory management is essential, as the existence of irregularities in stock control will have an impact on the supply chain. Out of stock communicates a negative image. It is losing the trust of that client, in whom you have put so much effort.
And the worst thing is to open the opportunity to your competition. Depending on the case, it is not losing one sale but losing many. A high percentage of your customers, most likely, will not return, and this is why we suggest you to contact inventory management companies.
WHY DOES SERVICE LEVEL AFFECT YOUR SAFETY STOCK?
Service level goal is basically the corporate goals that a company sets according to its strategy to manage its inventory. In summary, it means you decide at what level you want to meet your customer’s needs based on your stock capacity.
Although your company has a common expectation, it is not possible to ensure 100% availability for the entire product range. Therefore, management must determine at what level it wants to meet demand.
While determining and applying an optimal service level increases profitability, if the determined service level target is not suitable, this will result in a lack of stock or an increase in the amount of idle stock.
All this explains that it is essential to consult the experts of inventory management companies in India. Service levels are the biggest determinant of the safety stock.
As a result, when you decide to invest in safety stock, you are blocking some of your working capital, which plays an important role in your possible investment decisions.
While this investment is necessary for strategically important and fast-selling products, it is a dead investment for products that sell slowly or have a low share of your profitability.
There is an exponential relationship between service levels and safety stock. Whether it’s a by-product category based on customer demand or a product combination, you need to set the service level target on the basis of product groups in your company.
IS YOUR SAFETY STOCK LEVEL SUITABLE?
It is easy to determine the level of the right safety stock. However, when assessing your own safety stock situation, you should ask two questions: Do you have enough stock to meet demand? Too much stock? There is a fine line between too much and too little.