Extra inventory can result in higher costs with no improvement in performance for an organization. How do we know how much inventory to maintain at any given time? One approach to minimizing the costs associated with inventory is to use historical data to predict the demand. Using these predictions, replenish inventory in an economical manner (lead times, order quantities, etc.). This is often the best approach to optimizing inventory when there are large production times involved in the process.

The concepts, "Match Inventory to Predicted Demand" and "Use Pull Systems," seem to offer two conflicting approaches to optimizing inventory. Matching inventory to predicted demand is most appropriate when cycle times for production or assembly are large. In these situations, it is not acceptable to wait until an order is received to begin production. The use of pull systems is more appropriate when production delays are short. Often these two concepts are combined to develop an optimum inventory strategy.