Home › BBA Operations › Operations Management › Achieving World-Class Operations Management › What are the drawbacks of holding large inventor…
What are the drawbacks of holding large inventories?
AThey lower quality and raise the defect rate
BThey shorten the supply chain and cut variety
CThey raise wages and reduce staff productivity
DThey tie up money, cost to store, and can age
Answer & Solution
Correct answer: D. They tie up money, cost to store, and can age
1. Stock sitting in a warehouse has already been paid for, so it ties up the firm's money.
2. It also has to be housed and handled, which makes it expensive to store.
3. It can become obsolete before it is used or sold, in which case the money is lost entirely.
4. Those three costs are what a firm weighs against the ability to meet demand from stock.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 10 "Achieving World-Class Operations Management", section Inventory Management: Not Just Parts_
Related questions
What is business process management described as being able to do for a company?How have banks used automation to make services more accessible to customers?How do retail stores use point-of-sale terminals to improve operations?What does computer-integrated manufacturing combine?A flexible manufacturing system is expensive to install. Which combination of advantages jWhat does a flexible manufacturing system blend into an integrated system?For which kinds of task is replacing human effort with robots most effective?What is a robot in a production setting?