Too Much or Too Little Stock (SQA National 5 Business Management): Revision Note

When a business holds too much stock, a lot of money is tied up in unsold goods

This can limit the amount of cash available to pay wages, bills or suppliers

Money tied up in stock could be better used in other areas of the business, such as marketing

Extra stock needs more space, which means higher rent, insurance and security costs

The business also pays more for heating, lighting and managing the warehouse

Stock can deteriorate, spoil or go out of date if it is stored for too long

Products such as food or fashion items may lose value and need to be written off as a loss

The more stock a business holds, the greater the chance of theft, loss or accidental damage

This increases security costs

If there is not enough stock, production may stop because there are no materials to work with

This leads to downtime and lower output

If a business cannot supply customers on time, orders may be cancelled or customers may go to competitors

Repeated stock shortages can make the business look unreliable

Customers may lose trust and go elsewhere in future

If stock levels are too low, the business cannot respond to sudden increases in demand

This means missing out on opportunities for growth

When production stops, workers may have nothing to do, wasting labour time

Suppliers may also become frustrated if orders are placed at the last minute