To establish target inventory levels, businesses must determine which goods and services will meet consumer demand, the best production processes to use, and the intended consumer market.
When establishing target inventory levels for all products and materials, the three fundamental questions to address are:
- What goods and services are required to satisfy consumer needs and wants?
- What production processes should be used to produce these goods?
- For whom should the goods be produced?
An explanation of these aspects encompasses understanding the demand for specific goods and services, determining the most efficient production techniques, and identifying the target market for the end products. By answering these questions, companies can set optimal inventory levels that avoid overproduction and shortages, balancing cost with customer satisfaction.
In conclusion, effective inventory management requires a thorough analysis of demand, production methods, and target demographics to ensure that the right products are available at the right time for the right customers.