What Are The Advantages And Disadvantages Of Holding High Levels Of Stock Of Finished Products?

The main advantages of holding high levels of stock of finished products are as follows:

Keeping up with customer demand - If high levels of stock are held, the chances of selling out of any given product is very low as you can restock after, for example, half of the stock sells. This means that you won't lose out on sales due to not having the product in stock. This also encourages repeat custom.

Save money on purchase price - This can work in three ways. Firstly, buying in bulk often reduces cost as companies can justify offering a better deal due to the fact that they are managing to clear a lot of stock all at once. Secondly, quite often the earlier you get involved in purchasing stock the cheaper it will be. Finally, shipping in bulk is likely to cost less in the long run than, for example, 10 smaller deliveries.

Although the advantages are very positive, the disadvantages must also be taken into account. Such disadvantages include:

Cost of storage - This is a major issue which can often be overlooked. Keeping 5 of each product on sale would take up a fair amount of space, but bulk buying and having 100 or even more of each product would be very costly in terms of storage. For most products, the storage area would have to be secure, clean, damp free and free from mice and rats. This cost would need to be accounted for before purchasing high quantities.

Stock may perish - High levels of perishable stock, which may go out of date, is never really advised unless research has shown high levels are required. Out of date products are a sure way of losing money.

Holding inventory is not beneficial to the organizations examine the statement

What are two principal motive of firm to hold cash?

Advantages- if a order comes suddenly then theres no risk of low stock levels
disadvanatages- costly , wastes warehouse storage space and money spent looking after goods could have been spent elsewhere.

Advantages of high level of stocks are many like it provides a buffer to the companies against the high demands. If the prices of the products are expected to increase in future then a high level of inventory can also give a capital gain to the companies. High level of stocks can also eliminate the risk of fall of supply in the future. Shortages of goods in the market in future can be handled by keeping high levels of inventory.

On the other hand, the main disadvantage of keeping high levels of finished products will increase the costs of the warehouse management. Secondly, if the prices of the finished goods are expected to fall then the company can get the capital loss. Poor inventory management can result in the loss of inventory like obsolete inventory problems.