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Inventory is a significant and visible asset in most companies – often the largest.

For many businesses, managing inventory efficiently can be very challenging.Executives and shareholders have focused on inventory levels for years, but it has frequently been reduced arbitrarily. Excess inventory can pose a number of costly problems for any company. Companies today must be fast and nimble enough to react quickly to changes in customer demand

Holding a large volume of items on hand means you need a large amount of space to store your inventory. but warehouse space is not cheap, and the longer a product sits without being sold, the easier it could become damaged or even obsolete.

Keeping a large inventory of such products is also risky because consumers might not be willing to buy old versions of products at a price that is profitable when new or updated versions become available.

Moreover, Smaller inventory levels are also easier to manage. It takes less time to organise and retrieve inventory when there is less of it to put away and get out.The resulting lower expense from reducing inventory will contribute toward increased profit.

However, If you are using low levels of inventory then you need to have good communication with the supplier otherwise you will not be able to get inventory on time for production. Low levels of inventory cannot provide you with a cushion in case there is a surge in demand or there is no availability of the raw materials. In case there is some problem due to spoilage, there is no extra raw material to cover up for it.

Companies typically try to achieve a balance whereby they have just enough inventory to meet current and near-term demand, but not so much that they have excess.