How can improvements in inventory management impact profitability?

How can improvements in inventory management impact profitability?
Inventory represents cash that has been converted into product which has not yet been sold. If a company has ordered too much inventory, they have locked up cash in product which may not be easily converted in to cash, either because sales are not taking place, or the inventory cannot be returned to a vendor. A company must find the balance of not buying too much inventory so it does not have its cash tied up. In a cash crunch, the company may need to borrow money and pay interest when it could have had the ready cash if it had not bought too much inventory.The flip side of this is not having enough inventory to cover sales. A company may lose sales if it cannot supply the needed inventory to a potential customer at the desired time. Also, running short of inventory may require overnight or express shipping or paying higher rates to be resupplied on short notice.Managing inventory requires keeping in touch with customers to guage potential demand for product and monitoring vendors for supply shortages, bottlenecks, discounts, or price increases and ordering just the right amount of inventory to keep pace with demand. A good, clear history of past sales and ordering trends can help inventory managers determine future swings in sales.