|
Costs Of Holding Stocks
If too high a level of stocks is held, there may be various costs:
- Storage requires space, and factory space costs money. The total can be quite substantial for bulky products.
- Suppliers like to be paid, and so if a company is holding a high level of stocks they have to pay for them. This ties up capital which could be used for other more productive purposes.
- There may also be costs associated with keeping the stocks well to ensure they don't deteriorate.
- Cash flow may be damaged, because (as in no.2) money is tied up in stocks
|