How is effective inventory management characterized?

Effective inventory management is characterized by the ability to meet customer demand without overstocking or understocking. This balance is crucial for maintaining optimal inventory levels, which helps ensure that products are available when customers need them while also minimizing carrying costs associated with excess inventory.

Meeting customer demand involves accurately forecasting future sales and understanding consumer trends to determine the right amount of inventory to have on hand. When inventory levels are aligned with actual demand, businesses reduce the risk of stockouts, which can lead to lost sales and dissatisfied customers. Additionally, effective inventory management minimizes the costs tied to excess inventory, such as storage fees and obsolescence.

The other options do not align with effective inventory management principles. Having excessive stock on hand may lead to increased carrying costs and potential waste. Minimizing warehouse space utilization is not a goal of effective inventory management; rather, efficient use of space in conjunction with the right inventory levels is essential. Only ordering stock when demand increases can lead to stockouts and missed sales opportunities, which undermines customer satisfaction and business performance.