Woes of Stock outs
When we visit a shop and find that an item we want is out of stock, we might decide not to return to that shop in the future. This means the shopkeeper not only loses our business on that day but also risks losing us as customers permanently. To prevent this, shopkeepers try to keep popular items in stock at all times. This situation, known as a "stock-out scenario," can lead to significant loss of business if not managed properly.
Similarly, if a businessman doesn't maintain enough raw materials, production can come to a halt. Both scenarios highlight the importance of having adequate stock. While keeping sufficient stock can help ensure steady profits, it also involves costs, such as storage and maintenance. Therefore, a businessman must find a balance between having enough stock to meet demand and managing the costs associated with it, ensuring they don't face losses from either overstocking or stock-outs.
By CA L.Muralidharan and CPA L.Mukundan
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