A fun topic this one, and bit counter intuitive. There's actually no question but that the solution to achieving high service levels is 'just in time', and that that entails holding minimal stocks right through the supply chain. This latter (as is the case at all stages of the supply chain) is the amount needed to cover sales for whatever the lead time for replenishment is - plus some small buffer.
Large amounts of stock at various points in the process not only cost big time, but also massively slow response and reduce flexibility. (it takes ages to work through what's hung up in the queue/system to get to focus on what you really need to make, plus the management task becomes far more complex and error prone. Your inventory goes mad if you set work in progress aside)
The theory is absolutely clear, but the rub in practice is that if (a) your suppliers can't supply reliably in full to spec and on time and/or (b) you can't accurately forecast your likely sales, and/or (c) your supply chain doesn't work very well it's going to get lively.
In practice though the vast majority of lower cost Eastern sources do not deliver 'just in time' (JIT) or anything like it - they rather quote low prices but very long lead times - and demand large order quantities. And very often don't deliver on time. i.e. they perform the opposite of what's required by JIT
Which squeezes re-sellers back into having to carry large stocks to cover the unforeseen.
The fundamental though is that even large stocks don't resolve the issue if your estimation of demand and sources of supply are unreliable. Or if your materials management is dodgy. Which is why so many end up with stock outs.
Somehow in this situation you always end up with massive stocks, but never have in stock what you actually need. The problem becomes more and more acute as the product count increases, and manufacturing lead times increase vs the sales lead time advised to customers, and demand less stable.
It's common to see authoritarian finance directors (that see little except what they think is the bottom line) force the stripping out of inventory (rrrrrrrr....'we're much higher than industry norms') at considerable cost (discounted sell offs etc) - but not see the need to improve the quality, cost and delivery performance of the supply chain to match.
They usually as a result of subsequent crisis ordering that develops in the face of the resulting stock outs end up back where they started in not much over a year or so.
Another common cause of problems is poor co-operation between sales (not interested in getting involved helping to manage the supply chain through effective forecasting, demand management etc), suppliers (as above they suit themselves) and supply chain management - the latter group get hung out to dry.
The only route to reliable and on time supply is reliable functioning of the supply chain right from the start (materials sourcing) to the customer (delivered product).....