What is the impact of poor inventory management on businesses?

Poor inventory management can lead to higher operational costs for businesses in several significant ways. When inventory is not managed effectively, it can result in overstock or stockouts. Overstock situations mean that a company has more inventory on hand than it can sell, leading to excess holding costs like storage, insurance, and potential obsolescence of goods. In contrast, stockouts can disrupt sales, as customers may turn to competitors when items are unavailable, resulting in lost revenue and additional costs for expedited shipping or emergency orders to restock.

Furthermore, inefficient inventory management may require more labor to handle discrepancies and to maintain accurate inventory records, which can also increase staffing costs. Additional expenses can arise from the need for more frequent ordering or from penalties incurred for not meeting supply chain commitments.

The correct answer highlights that these factors combined lead to escalated operational costs, making it critical for businesses to implement effective inventory management practices to mitigate these challenges. In contrast, the other options suggest positive outcomes, which are generally impacted negatively by poor inventory management.