Which strategy is primarily used to reduce inventory holding costs?

Implementing Just-in-Time (JIT) inventory management is a strategy primarily focused on reducing inventory holding costs by aligning inventory levels more closely with actual demand. JIT emphasizes the need for timely deliveries and minimizing the amount of inventory held at any given time. This approach helps to decrease warehouse costs, reduce the risk of obsolescence, and minimize cash tied up in stock.

By producing or procuring goods only when they are needed in the production process or for customer demand, businesses can lower their holding costs significantly. This strategic management of inventory ensures that companies do not overstock items that might not sell, thus leading to lower storage costs, reduced spoilage, and improved overall efficiency.

In contrast, purchasing large quantities may initially seem beneficial but can result in increased holding costs due to the need for larger storage spaces and the risk of excess inventory. Increasing stock levels similarly raises the potential for surplus, increasing the burden of storing and managing that inventory. Frequent promotional sales may drive demand temporarily but do not inherently address the fundamental issue of holding costs. Therefore, employing JIT effectively targets the core objectives of reducing inventory holding costs while maintaining service levels.