A methodology for determining inventory levels based on value, space consumption, and turns.
Example: Generally the following “rules” apply:
“A” type inventory is very expensive (keep as little on hand as is reasonable so you don’t tie up too much cash in inventory.)
“B” type inventory is only moderately or middle of the road expensive (Minimize this inventory to free up cash also, but if you have a little extra it won’t break the bank.)
“C” type inventory is fairly inexpensive (If it consumes little space and costs very little don’t lose any sleep over it. That said, you should keep this inventory to a reasonable minimum as well.
Note: There is much more to explain on this topic, but this should get you started when engaging in an inventory reduction process.