ENTREPRENEURIAL OPERATIONS
INVENTORY MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Increase inventory cost
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Decrease inventory cost
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No effect on cost
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Both a and b
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Detailed explanation-1: -The safety stock helps an organization against the risk of loss of sales, and the increase in safety stock increases the carrying cost of inventory.
Detailed explanation-2: -In this context, companies cover risks by increasing their safety stock in a uniform way, which easily leads to overstocking. The effects of this excess inventory have a direct impact on logistics storage costs and the firm’s financial situation.
Detailed explanation-3: -Having too much safety stock can result in many holding costs, such as the costs of obsolescence, inventory storage, interest expense, and spoilage. This can be a major concern when inventory has a short shelf life, perhaps due to fashion trends or because it spoils within a short period of time.