If the cost of holding inventory is high relative to shortage costs,then allowing shortages may be a good policy

Question

Quizplus · Accepted Answer

If the cost of holding inventory is high, it may be more cost-effective to allow for some shortages as the cost of running out of stock may be lower than the cost of storing excess inventory. However, this decision should be based on careful analysis of demand patterns, lead times, and other relevant factors.

If the Cost of Holding Inventory Is High Relative to Shortage