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Finding the right balance between inventory investment and customer service is arguably one of the most important objectives for any retailer. Buy too much inventory and the tie up cash (Balance Sheet Impact) and risk bottlenecks in the supply chain. Buy too little inventory and the risk stocking out in the store and losing a potential sale (Income Statement Impact) thereby annoying the customer. The cost of a lost sale due to a stock out varies due to individual product economics but generally the cost is high for specialty retailers due to their high initial markups, and of course, the cost of losing a customer's ongoing share of wallet is unacceptably high. There are numerous tactics a retailer can employ within its supply chain to reduce stock outs.
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