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How Much Inventory Does Your Company Need?

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This story appears in the May 2013 issue of Entrepreneur. Subscribe »

Q: What's the right level of inventory for my business?

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A: In my book, there's only one right answer to this question: You always want enough stock on hand so that customers can buy whatever they want, whenever they want. If you're sold out, then you're turning away people who are primed to buy--and that's worse than having no customers at all. Compounding this situation is the fact that "sold out" switches your company into crisis mode, in which you're likely to pay a premium to vendors for a quick turnaround of new inventory, on top of vastly more expensive airfreight charges.

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