Which factor is essential for effective inventory management?

Maintaining sufficient supply without overstocking is fundamental to effective inventory management because it strikes a crucial balance between meeting customer demand and controlling costs. Proper inventory management aims to ensure that the right amount of products is available at the right time to satisfy customer needs while minimizing excess inventory that ties up capital and incurs storage costs. Overstocking can lead to increased holding costs, potential obsolescence of goods, and reduced profitability, whereas understocking can lead to stockouts, lost sales, and dissatisfied customers. Thus, the ability to forecast demand accurately and manage inventory levels accordingly is a critical component in achieving operational efficiency and financial performance in any organization.