Operations - Overstocking and Understocking

Question 1

• Define Overstocking
• Define Understocking

Answer 1

• Business buys more stock than required
• Business buys less stock than required

Question 2

Describe 3 costs (and their IMPACTS) of Overstocking

Answer 2

Supplies can expire or go out of trend before sold
* IMPACT = Sale must take place to clear stock

Too much stock bought = not much cash avaliable
* IMPACT = Not being able to spend on advertising, paying employees, etc.

Large quantites of stock needs to be kept in a warehouse
* IMPACT = Can get broken into or staff may steal it.

Question 3

Describe 3 costs (and their IMPACTS) of Understocking

Answer 3

Production can be halted if supplies run out
* IMPACT = Poor customer satisfaction

Higher delivery and admin costs
* IMPACT = More stock ordered frequently

Unexpected orders can’t be met
* IMPACT = Unhappy customers