Inventory

Inventory levels also influence customer satisfaction. The major problem is to keep up the delicate balance among carrying too much inventory and carrying too little. Carrying too much inventory results in higher-than-essential inventory-carrying costs and stock obsolescence. Carrying too little can result in stock outs, expensive emergency production or shipments, and customer dissatisfaction. In creation of inventory decisions, management has to balance the costs of carrying bigger inventories against resulting profits and sales.

During the past decade, various companies have highly reduced their inventories and associated costs through just-in-time logistics systems. Through such type of systems, producers and retailers carry just small inventories of parts or merchandise, frequently only sufficient for a few days of operations. New stock arrives accurately when needed, instead being stored in inventory till being used. Just-in- time systems need accurate forecasting along frequent, fast and flexible delivery so that new supplies will be available while needed. However, these systems result in substantial savings in handling costs and inventory-carrying.