Inventory is there to shield us from the unknowns and to reduce risks as you cannot rely on suppliers to have immediate on-hand stock of all the items you need.
Now the question is – how much inventory is enough? Where do we draw the line?
Just as the inventory helps reduce risk, it also comes at cost and its own risks.
This is why business are not considering inventory as an assets. Instead, they consider it as a liability since it is tying up working capital.
Many companies employed different inventory management techniques in order to balance out inventory to right value.
Balancing inventory is one of the toughest aspects of operations managements.
By successfully balancing inventory with actual demand you will minimize the risks of losing sales to competition or leaving you with unnecessary inventory.
This is why we employ forecasting models, and if you did not see the lecture on how to forecast in excel – I suggest that you pause the video and go watch it.