Final answer:
Management expert Ashok Rao suggests that companies can increase their profitability by 10% to 25% through careful inventory management. Strategic decisions in output can significantly affect profit margins.
Step-by-step explanation:
According to management education expert Ashok Rao, companies can increase their profitability by 10% to 25% through careful inventory management. Effective management can lead to significant cost savings by reducing the money tied up in unsold inventory and lowering storage costs, leading to boosts in profitability. Furthermore, strategic inventory management can help a company to respond flexibly to market demands while maintaining lean operations.
Considering the provided example, if Company A believes that Company B will cooperate by holding down output, Company A might increase its own output to maximize profits. This is based on the assumption that with Company B’s output low, Company A’s expanded output would lead to higher profits, which can also be seen as a strategic move within inventory and output management.