A primary reason to hold inventory is to offset uncertainties in demand. If demand increases and raw material stocks out, the production line shuts down until more material is delivered. Likewise, a shortage of work in process means the product cannot be finished. Finally, if customer orders outstrip finished goods supply, the resulting stock outs could lead to lost customers.
Finished products stock outs leave customers a variety of options. The customer can wait, back order, substitute, buy elsewhere this time, or buy elsewhere permanently. The frequency of stock outs and the existence of completion influence the choice. The customer would probably wait or backorder if stock outs are infrequent. Repeated stock outs may cause the customer to substitute or seek another supplier.
Finished products stock outs leave customers a variety of options. The customer can wait, back order, substitute, buy elsewhere this time, or buy elsewhere permanently. The frequency of stock outs and the existence of completion influence the choice. The customer would probably wait or backorder if stock outs are infrequent. Repeated stock outs may cause the customer to substitute or seek another supplier.