Question

What are the advantages & disadvantages of excess inventory? (250 words)

Answer 1

Following are the advantages of excess inventory-

• Fast fulfillment- When there is excess inventory, customers get products in hands much faster which increases their satisfaction. Even when customers don't have an immediate need for the product, when the decision to buy is made, the customer likes to walk out with the product in hand.
• Wholesale pricing- Many business owners can take advantages of lower wholesale costs when they buy larger quantities of units. The lower costs could be significant depending on the price points of the product.
• Full shelves- When you keep just enough inventory to get through the normal sales cycle, shelves can look sparse as you get closer to the next time to order. This sends a positive message to the customer that business is good and the store is ready for business.
• Decreased risk of shortages- By keeping stock on hand, a business is able to guarantee, that it will not run out of a particular item, and you have less to worry about if a product is discontinued.

Following are the disadvantages of excess inventory-

• Obsoleteness- The value and quality of the product decrease the longer a business keep it on stock. A business have to make it a priority to sell your inventory while they’re new to the market. If the business is selling perishable goods, it would have to sell them at a much lower price the nearer it gets to its expiration date.
• High storage costs- Excess inventory means extra space needed for storage and extra costs. Since a business have to include those extra costs in their price, they might end up losing to competition with other sellers because the price is too high.
• Tying up capital- When you have excess inventory, you pay for the order, the storage and insurance. This can hamper business development for businesses that are working with small margins and on tight monthly budgets because they don't have cash on hand.