What is a common consequence of poor inventory management?

Higher operational costs due to stockouts or overstocking is a common consequence of poor inventory management because ineffective tracking and control of inventory levels can lead to an imbalance. When inventory is not managed properly, organizations may experience stockouts, which occur when there is insufficient stock on hand to meet demand. This can force businesses to expedite orders, resulting in increased shipping costs and lost sales opportunities. Conversely, overstocking can occur when too much inventory is purchased, tying up cash flow and storage space, and potentially leading to waste if products become obsolete or expire.

Both stockouts and overstocking ultimately drive up operational costs, making it challenging for the business to maintain profitability while also affecting customer satisfaction and supply chain efficiency. Thus, poorly managed inventory can significantly impact financial performance, highlighting the importance of effective inventory management practices.