Glossary

Inventory Optimization

In one line: Inventory optimization uses AI to decide how much of each item to hold, where, and when to reorder — balancing stockouts and overstock continuously.

More than forecasting

Demand forecasting predicts what you’ll sell. Inventory optimization decides what to do about it — how much to order, when, from which supplier, allocated to which location. The two are related but distinct: a perfect forecast doesn’t help if your reorder logic isn’t sound.

What it accounts for

• Supplier lead times (some take 2 days, some 6 weeks)
• Minimum order quantities and case-pack sizes
• Storage costs and shelf life
• Service level targets (95% in-stock vs 99% costs very different)
• Promotion calendars that will spike demand
• Allocation between multiple locations or channels

What it achieves

Typical wins: 15–30% reduction in stockholding cost, fewer stockouts, less write-off of expired or obsolete stock. For retailers, the working capital freed up by smarter inventory often funds the next investment in the business.

Related terms

Demand Forecasting, SKU-Level Forecasting, Dynamic Pricing