Operations - Overstocking and Understocking

Question 1

Define Overstocking

Answer 1

Business buys more stock than required

Question 2

Define Understocking

Answer 2

Business buys less stock than required

Question 3

Describe 3 costs (and their IMPACTS) of Overstocking

Answer 3

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 4

Describe 3 costs (and their IMPACTS) of Understocking

Answer 4

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