Quick Answer: Why Is Too Much Inventory Bad?

What are the risks of holding inventory?

What is inventory risk?Inaccurate forecasting.

The goal of many a business is to achieve that perfect forecast, so you are ordering and selling the right inventory stock, in the right amounts, at the very time your customers demand it.

Unreliable suppliers.

Shelf life.

Theft.

Loss.

Damage.

Life cycle..

How do you handle excess stock?

Here are 10 ways that might help you reduce your excess inventory.Return for a refund or credit. … Divert the inventory to new products. … Trade with industry partners. … Sell to customers. … Consign your product. … Liquidate excess inventory. … Auction it yourself. … Scrap it.More items…

When should you avoid holding inventory?

If the production is not consistent with quality, the goods produced will get rejected leading to an increase in rejected inventory. Secondly, to make up for the loss due to quality rejection, one would have to increase production and hold finished goods inventory.

What are the consequences of having too much stock?

having too much stock equals extra expense for you as it can lead to a shortfall in your cash flow and incur excess storage costs. having too little stock equals lost income in the form of lost sales, while also undermining customer confidence in your ability to supply the products you claim to sell.

What does excess inventory mean?

Excess inventory is a product that has not yet been sold and that exceeds the projected consumer demand for that product.

What are the reasons to hold inventory?

Four very good reasons to hold inventoryExpecting the unexpected. By far the greatest adversary any inventory manager is expected to overcome is fluctuating consumer demand. … A time to buy and a time to buy more inventory. … Capitalizing on low cost offers. … Putting on bottom-line body armor.