Final answer:
The risk increases for obsolescence, higher storage costs, and liquidity issues the longer inventory remains unsold. Efficient inventory management is essential to minimize these risks.
Step-by-step explanation:
The longer the inventory remains unsold, the higher the risk of several negative consequences such as obsolescence, storage costs, and liquidity issues. When products are not sold in a timely manner, they may become obsolete, especially in industries where products are updated frequently, like technology or fashion. Additionally, storage costs can accumulate, placing a financial strain on the business. The capital tied up in unsold inventory could also impact liquidity, making it harder for a company to meet its short-term obligations.
This scenario underscores the importance of efficient inventory management to minimize holding costs and maximize the business's operational efficiency. Effective strategies might include just-in-time inventory systems, better demand forecasting, or clearance sales to reduce excess stock.