What is inventory optimization? Why is it important?

Inventory optimization consists of determining and maintaining the right stock levels for each item in order to meet demand while minimizing working capital and storage costs. In other words, it is about finding the right balance: avoiding stockouts (which lead to lost sales) while also preventing overstock (which generates unnecessary costs).

Effective inventory optimization is important because it improves profitability and customer service levels—ensuring the company has the right products at the right time, without excess.