Answer & Explanation:
1. Meeting customer demand (5 marks): Keeping sufficient inventory ensures that customer demand is met promptly, leading to increased customer satisfaction and repeat business. If a company runs out of stock, customers may turn to competitors, resulting in a loss of market share and revenue.
2. Preventing stockouts (5 marks): Stockouts can hurt a company's reputation and result in lost sales. Sufficient inventory levels help prevent stockouts, ensuring that customers can access the products they want when they want them, and minimizing the likelihood of negative reviews or customer complaints.
3. Buffer against lead time variability (5 marks): Supplier lead times can vary due to production issues, shipping delays, or other unforeseen factors. Maintaining adequate inventory allows a company to absorb these fluctuations and continue to meet customer demand without interruptions, ensuring smooth business operations.
4. Taking advantage of economies of scale (5 marks): Ordering and storing inventory in larger quantities can lead to cost savings through bulk discounts, lower shipping costs, and more efficient use of storage space. Maintaining sufficient inventory levels allows businesses to capitalize on these economies of scale, reducing overall operating costs.
5. Protection against price fluctuations (5 marks): Commodity prices and other input costs can be volatile, impacting the cost of producing or purchasing inventory. By keeping sufficient inventory levels, companies can mitigate the effects of these fluctuations and maintain more stable pricing for their customers, contributing to a consistent brand image and customer experience.