RSI FAQ · Question 01

01

Right-sized inventory is the minimum stock that consistently meets demand while limiting working capital, carrying costs, and obsolescence risk.

Right-sized inventory is the optimal amount of stock a business should carry of a given item at a given location to meet customer demand reliably while minimizing excess working capital, carrying costs, and risk of obsolescence.

Most companies both hold too much inventory (tying up cash, creating waste) on items and too little (causing lost sales and service failures) on other items. Right-sizing finds the balance point.

• Not “lean” at all costs → Cutting inventory too aggressively risks stockouts.
• Not “just in case” stockpiles → Over buffering drains profitability.
• The right size depends on demand variability, lead times, and service-level goals.

A distributor carrying $5M of excess stock was able to free $1.2M in working capital while improving service level reliability by shifting inventory from some items to other items using right-sized inventory optimization guided by simulation.