Which of the following is NOT considered a pressure to hold large inventories in competitive markets?

• A. To minimize holding costs and increase cash flow
• B. To take advantage of quantity discounts from suppliers
• C. To reduce the risk of production stoppages due to supply delays
• D. To avoid stockouts and meet unexpected demand

Answer: (A)

Verified step by step guidance

1. Step 1: Understand the concept of inventory holding pressures in competitive markets. These pressures are factors that motivate firms to keep larger inventories to ensure smooth operations and cost advantages.
2. Step 2: Identify common reasons for holding large inventories: (a) to take advantage of quantity discounts from suppliers, (b) to reduce the risk of production stoppages due to supply delays, and (c) to avoid stockouts and meet unexpected demand.
3. Step 3: Recognize that holding large inventories typically increases holding costs, such as storage, insurance, and capital costs, which firms generally want to minimize rather than maximize.
4. Step 4: Analyze the option 'To minimize holding costs and increase cash flow'—this is actually a pressure to hold smaller inventories, not larger ones, because minimizing holding costs means reducing inventory size.
5. Step 5: Conclude that the option 'To minimize holding costs and increase cash flow' is NOT a pressure to hold large inventories, unlike the other options which are valid reasons to maintain larger stock levels.