CPIM Practice Exam

What outcome occurs if a firm maintains higher inventory levels due to seasonal production?

1. Lower inventory carrying costs

2. Improved customer satisfaction

3. Increased risk of obsolescence

4. Enhanced production flexibility

The correct answer is: Increased risk of obsolescence

When a firm maintains higher inventory levels due to seasonal production, one significant outcome is an increased risk of obsolescence. This occurs because goods that are produced and stored for extended periods may become outdated or less desirable by the time they are sold. Seasonal products, in particular, can quickly go out of style or lose relevance, leading to inventory that cannot be sold at full price or at all. While maintaining inventory can improve customer satisfaction by ensuring products are available when demanded, the downside includes the challenge of managing that inventory effectively. In contrast, enhancing production flexibility and lowering carrying costs are less likely outcomes of high inventory levels, as the firm may face higher costs associated with holding large volumes of stock and may limit its ability to adapt quickly to changing market demands. Thus, the primary concern with higher inventory due to seasonal production is the significant risk of introducing obsolescence into the inventory cycle, as products may not retain their value over time, especially in dynamic markets.