Inventory levels refer to the amount of stock stored in the warehouse

What are inventory levels?

November 10, 2022

Knowing your ideal inventory levels is key for efficient logistics processes. Having the right amount of stock in your warehouse reduces costs and ensures order fulfillment without delays.

To foster productive, error-free logistics operations, it’s crucial to review your facility’s inventory levels. Excess products drive up costs, while not enough goods could lead to stockouts.

What are inventory levels?

Inventory levels are the number of goods a company has across its entire logistics or distribution network. This metric includes the quantity of stock located in warehouses, logistics centers, and physical stores.

Analyzing your inventory levels is vital for an efficient stock management strategy. Optimal stock levels are those that maximize your facility’s performance while preventing unnecessary storage costs. Logistics managers should know the exact amount of stock required for each SKU to fill all orders placed (so that they don’t turn into backorders).

Ideal stock amounts can vary over time, especially in businesses with highly seasonal products. To manage this, the logistics managers of these types of organizations should regularly examine the turnover and demand for each SKU, updating inventory levels as changes occur.

Defining optimal inventory levels can be quite complex when your sales increase, your product portfolio grows, or you move into new markets.

The maximum stock level is the largest amount of inventory you can store without incurring unnecessary costs
The maximum stock level is the largest amount of inventory you can store without incurring unnecessary costs

What are minimum and maximum inventory levels?

To define the perfect inventory level, the following metrics are critical:

  • Minimal stock levels: minimum number of products you need to store to prepare all orders. If you were to run out of inventory, you would rely on your safety stock, i.e., the additional goods you set aside for a rainy day to avoid stockouts.
  • Maximum stock levels: maximum quantity of goods you can store to fulfill orders without running into unnecessary warehousing costs. If you go over that amount, your company could generate overstock, possibly resulting in a lack of storage space.

It’s important not to confuse optimal inventory levels with the average inventory level, which calculates the estimated number of goods in a facility over a specific period of time.

Easy WMS warehouse management software balances inventory levels
Easy WMS warehouse management software balances inventory levels

Optimal inventory level: factors to take into account

When defining your business’s target inventory levels, factors to consider include storage costs and product handling times required. Increasing the amount of stock in your facility raises logistics costs. On the other hand, appropriate inventory levels improve the organization of operations in a warehouse. They streamline goods movements, simplify the supply process, and guarantee better accessibility to products.

An optimal inventory level contributes to efficient logistics operations. Bringing inventory levels down to just the essentials lets you detect inefficiencies more easily. It can help you steer clear of product turnover errors and delivery delays, for instance.

However, expanding into new sales channels ups the complexity when it comes to defining the right inventory levels. According to a survey from consulting firm McKinsey, “higher overall stock levels have become the norm,” causing businesses to seek ways to “ensure resilience while keeping inventory costs under control.” Inventory levels have become a major concern for companies: for 58% of respondents, inventory optimization is a priority.

Digitization to optimize inventory levels

Companies turn to digitization to improve their supply chain planning and execution. Swapping out manual goods control for a warehouse management system (WMS) enables you to monitor your stock in real time.

Recording all entries, exits, and movements of goods provides logistics managers with objective information to determine the best inventory levels. For example, you can identify products with a higher demand to make sure they’re always on hand. And that will thwart stockouts and the ensuing delays.

The software analyzes product turnover to automatically define the ideal inventory levels. With this information, the program accurately organizes procurement tasks, ensuring that your business always has the goods it needs to fill all orders.

Controlling a large volume of items is complex in itself. When stock is spread out over several facilities, this task is far more complicated. Companies with a multi-location inventory management strategy can deploy cloud-based logistics software to coordinate the management of their stock in different locations. This way, operators can access the system from any part of the world — all they need is an internet connection. Moreover, the software optimizes the tasks in each warehouse and supervises transfers of stock between centers.

Warehouse management software helps to achieve optimal inventory levels
Warehouse management software helps to achieve optimal inventory levels

Target inventory levels for balanced logistics operations

Global sales growth and SKU proliferation in storage facilities have made stock management a real feat these days. Efficient logistics processes are based on optimal inventory levels that ensure order fulfillment and streamline warehouse operations.

Interested in improving your supply chain productivity? Don’t hesitate to contact Interlake Mecalux. Our Easy WMS software has helped numerous businesses all over the world balance out their inventory levels and boost their logistics operations.

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