Inventory Management Q

Inventory as Liability headings

• Shrinkage

• Inaccurate Demand Forecasts

• Unreliable Suppliers

Shrinkage

Excess inventory may lose its value overtime due to damages, obsolescence and expiry especially if goods are non perishable. Overstocked items can also occupy valuable warehouse space and incur storage costs if not dealt with.

Inventory as Liability headings

• Shrinkage

• Inaccurate Demand Forecasts

• Unreliable Suppliers

Shrinkage

Excess inventory may lose its value overtime due to damages, obsolescence and expiry especially if goods are non perishable. Overstocked items can also occupy valuable warehouse space and incur storage costs if not dealt with.

Inaccurate Demand Forecasts

Poor forecasting can lead to both overstocking and understocking. A business that underestimates demand may miss on potential sales while over estimation results in unsold stock and high holding costs.
Example: Fashion retailers such as H&M may participate in a micro trend and overstock on items, that are left unsold and resulted in markdowns and reduced profitability

Unreliable suppliers

Although inventory can cushion short term disruptions, long term reliance on suppliers may pose significant risks. Delays or poor quality deliveries can halt production and escalate operational costs.

For instance, manufacturers dependent on overseas suppliers may face delays due to factors such as political instability, weather or logistical disruptions, undermining their ability to have inventory and meet market demand