Deliveries arriving too early or too late cause problems for firms. The same goes with having too much stock or indeed having too little.
This is called understocking and overstocking. Often an exam question will ask you to talk about the advantages and disadvantages of both.
Understocking
- Cannot cope with unexpected changes in demand
- Production line may have to stop – therefore firm is paying an idle labour force
- Cannot meet customers’ orders so they may choose to go elsewhere
- Increased administration costs if firm is frequently re-ordering
Overstocking
- High costs of storage and maintenance
- High insurance costs
- Possible need for security measures
- Large amount of space needed
- Money is tied up in stock which could be used elsewhere
- Stock may deteriorate or become obsolete
- Safe disposal incurs extra cost
This answer was taken from the 2005 Higher BM paper, so remember to expand!
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