Final answer:
The benefit of keeping inventory levels low is that it reduces shrinkage costs, which can occur from theft, damage, or miscounting, thus helping in minimizing financial losses for a company.
Step-by-step explanation:
Benefits of Keeping Inventory Levels Low
One of the benefits of keeping inventory levels low is that it reduces shrinkage costs. Shrinkage refers to the loss of inventory due to factors such as theft, damage, or miscounting. By minimizing the amount of stock on hand, a company can reduce the possibilities for shrinkage to occur. This ultimately lowers the costs associated with lost or damaged goods, which can contribute to a healthier bottom line. Unlike setup costs or inventory turnover, which are not directly affected by the quantity of inventory, shrinkage is a concern that can be mitigated with lower inventory levels.
Another benefit not mentioned in the options is the optimization of warehouse space and reduction in storage fees. Companies like Amazon utilize this strategy by storing their goods in highly computerized warehouses located in areas with lower rent. Within these warehouses, economies of scale are exploited, allowing for lower average costs per sale. Although not specifically listed among the choices, this concept underscores the advantage of maintaining lower inventory levels.