What are the significant disadvantages of keeping inventory levels low
in a business?  Why should a business effectively mangage its
inventory?

Hi g_blha!
High and low inventory levels have their respective advantages and
disadvantages. The "right" inventory level (i.e., the ones that
maximizes the firm's profits) depends on several factors. For example,
if an automobile dealer wants to be able to deliver on demand a car of
any single color (that is, with no waiting time for the customer), he
will need a huge lot or warehouse to store his cars, and will probably
have to hire extra security to protect them. This illustrates the
advantages and disadvantages of a high inventory level: the advantage
is that the customer will not have to wait to get his or her product
(and therefore, the firm will have a high customer satisfaction level,
possibly attracting more customers); while the disadvantage is that
the firm will have higher storage costs.

The opposite happens with low inventory levels. In this case, the firm
will have low storage costs; however, it will experience shortages
more frequently, and thus it will have a hard time maintaing customer
satisfaction.

Check this link for a bit more information (go to "3 question 9")
://www.google.com.ar/search?q=cache:9cvmocSiqVQC:www.ieor.berkeley.edu/~kaminsky/ieor153/hw1solutions.pdf+low+inventory+disadvantages&hl=es&start=1&ie=UTF-8

Summing up, any firm that seeks to maximize their profits faces a
trade-off regarding the level of inventories. A high level will
attract more customers while increasing the firm running costs
(because of the higher storage expenses), and a lower level will
result in higher waiting times for customers but with a lower cost for
the firm.

Hope this helps!

Best wishes,
elmarto-ga

---

Clarification of Answer by elmarto-ga on 25 Mar 2003 06:28 PST

I'm sorry, I forgot to include how I came up with the answer.
I used my personal knowledge used the Google search terms:
low inventory disadvantages

If you need any clarification, please feel free to request it!

explanation top-notch! you were very clear and it could have been
understood if I was 12!