MANAGEMENT

Detailed explanation-1: -Understocking has the potential to create some serious problems for all kinds of businesses. These problems can range from the loss of sales and customer loyalty to the cost of expensive restocks and missing out on discounts.

Detailed explanation-2: -To calculate the cost of understocking, multiply the number of sales missed due to understocking by the average cost per sale.

Detailed explanation-3: -Overstocks tie up cash and take up storage space that could be used for new products and opportunities. Conversely, understocks lead to lost sales. Accurate estimation can help prevent both overstocks and understocks.

Detailed explanation-4: -Lack of Funds Sometimes, understocking results from a business not having enough money to keep their inventory fully stocked. If your company runs into this issue, you’ll need to find a way to free up some funding so that you can invest in the future.