A company produces to stock and sells its products to distributors. The factor that most likely will contribute to the risk of loss in inventory investment is the:
A company produces to stock and sells its products to distributors. The factor that most likely will contribute to the risk of loss in inventory investment is the:
The accuracy of demand forecasts is crucial in a produce-to-stock model because the company produces inventory based on anticipated demand. If the forecasts are inaccurate, the company risks overproducing or underproducing. Overproduction leads to excess inventory and increased holding costs, while underproduction can result in stockouts and lost sales. Therefore, inaccurate demand forecasts most likely contribute to the risk of loss in inventory investment.
In a produce-to-stock model, companies manufacture and stock inventory based on demand forecasts before receiving any actual orders.