Understocking occurs when inventory levels fall below the demand, resulting in stockouts and lost sales opportunities. It negatively impacts customer satisfaction and can damage a company’s reputation. Managing understocking risk requires accurate demand forecasting, safety stock calculation, and supply chain responsiveness. However, too much safety stock to avoid understocking can increase holding costs. Inventory optimization tools analyze historical sales patterns and lead times to minimize understocking risk while controlling inventory costs. This balance is critical for maintaining service levels without excessive capital tied up in stock.
