What is the significance of an economic retention less than 100?

An economic retention ratio of less than 100 signifies that the quantity of inventory being retained is less than the optimal level needed to meet anticipated demand. This situation can indicate potential issues in demand forecasting, as it suggests that the organization may not have accurately predicted customer needs. When the retention ratio is low, it could lead to stockouts or insufficient inventory to fulfill orders, impacting customer satisfaction and overall business performance.

This concept emphasizes the importance of effective demand forecasting in logistics management, ensuring adequate stock levels are maintained to meet market demand without overstocking. Inadequate forecasting can result in financial losses and inefficiencies within the supply chain. Thus, recognizing a retention ratio below 100 is crucial for addressing potential inventory management challenges.