Firms should hold the minimum amounts of inventories that will not jeopardize productions schedules or the satisfaction of customer expectations.

Question

Quizplus · Accepted Answer

Holding excessive inventories ties up valuable capital and can lead to increased storage costs and the risk of obsolescence. However, insufficient inventories can lead to production and delivery delays, causing customer dissatisfaction. Therefore, firms should aim to strike a balance between these two extremes and hold the minimum amount of inventories necessary to meet production schedules and customer demand.

Firms Should Hold the Minimum Amounts of Inventories That Will