What happens if a business holds too little inventory?

Holding too little inventory can significantly impact a business's operations and customer satisfaction. When a business does not maintain sufficient inventory levels, it may struggle to meet customer demand promptly. This leads to situations where customers may find that products are out of stock, preventing them from making purchases. As a result, the business risks losing sales opportunities, which can directly affect revenue and profitability. Moreover, frequent stockouts can lead to dissatisfied customers who may turn to competitors to fulfill their needs, further harming the business's reputation and customer loyalty.

In contrast, having too much inventory can tie up cash and lead to increased holding costs, while maintaining optimal levels supports efficiency and customer satisfaction. Therefore, ensuring adequate inventory is crucial for maintaining sales and a positive customer experience.