consequences of overstocking and understocking Flashcards
what are some consequences of overstocking
-Supplies could go out of date if they are stored for too long.
-supplies could go out of fashion before they are used
-too many supplies leaves a risk of theft by staff, customers or thieves
-the business will have to pay for stock holding costs, such as security and insurance
-the opportunity cost of money being tied up in inventory which could be better used elsewhere in the business
what are some consequences of understocking
-the business may run out of inventory and be unable to continue production or carry on selling
-the business will not benefit from bulk buying discounts due to making smaller orders
-there may be no goods to sell, resulting in a bad reputation and customers not returning
-there will be an increase in delivery costs since smaller deliveries will have to be made
-there will be an increase in administration costs (eg. paying staff to browse for supplies, compete order forms, settle invoices etc)
