Disadvantages of overstock
In operating any business, we want to ensure that we have enough stocks to fulfil customers orders. Keeping a large amount of inventory or stock can be advantageous as it would mean there is a lesser chance of having not enough stocks for customers. However, holding a large amount of inventory have their disadvantages. Below are some disadvantages of holding too much inventory.
Having a large amount of inventory also means you need more space to store them. Warehouse/storage space does not come cheap and furthermore you may need to pay more insurance costs to insure those inventories.
Market demand / trend
Consumers are prone to follow the market trend in their purchases. Consumers who may purchase a lot during May – July may not make the same purchase in the next May – July. Reason is there may be market trends that affect their decision. Having more stocks will then make the goods outdated and it also takes up warehouse/storage space. This is usually for the case for products such as electronics goods, softwares or fashion.
Perishable goods deteriorate
In some business that sell food products, keeping a large quantity will have the risk of the food products getting bad when they are not sold much before their expiry date. Food product deteriorate over time and it is a risk to keep large quantity.
Normally most owners who overstocks will need to have huge discounts out to consumers in order to clear up the warehouse/storage space.
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