¶ … inventory to logistics. A company's inventory consists of its raw materials as well as finished and unfinished goods that have yet to be sold. As inventory components progress through various phases, a company uses logistics to manage the flow of materials and goods from suppliers, through the organization, and to the customers. This flow must be maintained with priority on efficiency and cost effectiveness, which requires inventory optimization, thus the relationship between inventory and logistics.
One of the key determinants of inventory levels is the need for a company to provide customer service. In considering the quality of their customer service efforts, companies recognize that customer service is a key competitive differentiation point as they attempt to create value for their end consumers. Given this competitive environment, firms must hold inventory at sufficient...
On the other hand, they must still manage costs. So, on the one hand, there is the problem of having too much inventory, which can lead to higher costs, versus having too little inventory, which can lead to lost sales. Logistics assists in inventory control so that firms can pursue inventory reduction strategies that optimize inventory levels.
Companies have to strike a balance between carrying enough inventory to be able to respond to customer demand and minimizing their investment in inventory. At the same time, they must also minimize their investment in facilities and equipment, as well as reduce warehousing and storage costs. All of these logistical costs must be taken into account when determining inventory levels.
To avoid shortfalls and stockouts, companies carry extra inventory or safety stock. As they provide higher levels…
