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Apart from the actual cost of buying stock in the first place, there may be a number of other costs linked to stock. Too much stock can lead to:
- Money being tied up in the stock, which cannot be used for other purposes until the stock is sold.
- Possible cash flow problems may result from this.
- Increased storage costs, such as heating, lighting, refrigeration and insurance.
- Possible increased wastage of stocks.
Too little stock can lead to:
- Idle workers and machines, and therefore lost output while wages and other costs still have to be paid.
- Orders are lost if deadlines cannot be met.
- Poor relations with customers, resulting from delays in deliveries.
- Loss of reputation and good will.
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