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The optimum inventory level for a retail store is the amount of goods needed to meet planned demand, in a quantity that does not compromise anticipated profits. Navigating this balance requires careful planning, logistics and operational capabilities to make sure that the entire supply chain works seamlessly. Some of the factors that are used in determining the optimum inventory level are:
- Availability of retail space.
- Product demand.
- Availability of capital.
- Product sales history.
- Inventory carrying cost.
There are many ways to calculate or determine the optimal inventory level and it all depends on the type of retail establishment. One of the methods used is called the economic order quantity (EOQ) which is determined by the following factors:
- D – Annual product demand.
- K- Cost per order.
- H- Annual unit inventory holding cost.
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