Inventory and Service-Level Optimization can establish service-level targets that reflect the profitability of an item, location, or customer. Inventory, like all other investments alike, need prioritization based on material, customer and geography. This way, global service-level targets are met, while simultaneously high-value-low-demand items help control inventory and maximizing revenue. By mathematically modeling all relevant drivers of inventory requirements and lost revenues – such as sales volume, demand volatility, lead times, and capacity constraints – optimal inventory levels are estimated.

The goal of inventory management is to achieve a trade-off balance between the cost of inventory and service levels. Service level requirements are largely stipulated based on the business context, competition, penetration levels, and growth plans. Various statistical techniques are available to calculate adequate inventory that minimizes the cost for a given service level. Applicability of these statistical techniques is governed by the volumes and pattern of sales volumes and varies with industry.