Efficient logistics processes require knowing the ideal inventory level. Having the right amount of stock in the warehouse reduces costs and prevents delays in fulfilling orders. Companies should review their inventory levels to promote productive and error-free logistics. Overstocking increases costs, while understocking can lead to stock-outs.
What is the inventory level?
Inventory level is the volume of stock held by a company throughout its logistics or distribution network. This metric considers the amount of stock located in warehouses, logistics centers, and physical stores.
Analyzing inventory levels is fundamental to an efficient stock management strategy. Optimal inventory levels maximize the facility’s profitability without incurring unnecessary storage costs. The logistics manager needs to know how much stock is required to fulfill outstanding orders.
The ideal amount of stock can vary, especially in companies with seasonal products. The logistics manager in these organizations must periodically review turnover and demand for each item and update inventory levels when changes occur. Defining the optimal inventory level is complex when companies increase sales, expand their product portfolio, or distribute their products to new markets.
What is the minimum and maximum inventory level?
To define the perfect inventory level, it is essential to know the following metrics:
- Minimum stock: the minimum number of products required to prepare all orders. The company should use safety stock in the event of stock-outs, i.e., reserve items to deal with contingencies and eliminate the risk of stock-outs.
- Maximum stock: the maximum amount of merchandise that a company can store without incurring unnecessary storage costs. If this quantity is exceeded, the company could be affected by an overstock situation, which may result in a lack of storage space.
Optimal inventory levels should not be confused with average stock, which measures the average stock in the warehouse over a specific period.
How does an optimal inventory level affect operations?
Defining the optimal inventory level considers factors such as storage costs and the time required to handle items. Increasing the amount of stock in the warehouse increases logistics costs. Optimal inventory levels promote better organization of operations in the facility, facilitate the movement of goods, simplify the sourcing process, and ensure better accessibility to products.
An optimal inventory level promotes efficient logistics. Reducing the inventory level to what is indispensable makes it easier to detect inefficiencies, such as errors in the rotation of items or delays in delivery times.
Leave these tasks to the experts
Companies can delegate inventory management to experts such as Xborder, a company dedicated to making global supply chains more efficient. Inventory levels are critical to operations, so giving them the necessary attention is vital. Xborder has more than ten years of experience facilitating the entry of companies into Latin American territory and making their supply chains more efficient, providing all the necessary services to operate successfully. For more information, visit www.xborder.co, where their team will gladly answer all your questions.