 that you will be unable to sell some of the inventory in time before it goes bad, which can force you to throw away product. Similarly, certain types of products, such as computers and other electronic devices tend to become obsolete quickly. Keeping a large inventory of such products is risky because consumers might not be willing to buy old versions of products at a price that is profitable when new or updated versions become available.
Shifts in Demand
Another disadvantage of keeping a large amount inventory on hand is that certain goods might not sell due to shifts in market demand. For example, a clothing store that stocks too many tank tops during the summer may find itself unable to get rid of the tank tops before fall. During the fall, consumers might demand different types of clothing, like T-shirts or sweatshirts, leaving the company with a large quantity of goods on hand that simply take up space.
While high levels of inventory can be a disadvantage, carrying too few goods on hand can also be harmful to a business. If you run out of a certain product, you could miss out on potentially profitable sales, and this could cause customers to give their business to your competitors. Managers must decide on an inventory level that balances the risk of running out of products with storage costs and the other negative aspects of holding too much inventory.