What does efficient inventory management aim to reduce?

Efficient inventory management primarily aims to reduce carrying costs. Carrying costs encompass all expenses associated with holding inventory over a certain period. This includes costs related to storage, insurance, obsolescence, depreciation, and even opportunity costs tied to capital tied up in unsold goods. By optimizing inventory levels, businesses can minimize these expenses, leading to more efficient operations and increased profitability.

In effective inventory management, businesses strive to find the right balance between having enough stock to meet customer demand without overstocking to the point where unnecessary costs are incurred. This focus on minimizing carrying costs directly contributes to overall operational efficiency and can significantly impact a company's bottom line.