Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.

Question

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By increasing inventory levels, a firm can take advantage of economies of scale in transportation. This means that larger shipments can be made, resulting in lower transportation costs per unit. Additionally, holding more inventory can reduce the frequency of shipments, which can further reduce transportation costs. However, it is important to balance the potential cost savings with the costs of holding excess inventory, such as increased storage and handling costs.

Increasing Inventory Levels Can Sometimes Help a Firm Reduce Both