Why might a company choose to carry inventory?

• A. To reduce storage costs to zero
• B. To eliminate the need for production planning
• C. To avoid paying suppliers for goods
• D. To meet unexpected increases in customer demand

Answer: (D)

Verified step by step guidance

1. Understand the role of inventory in a company's operations: Inventory acts as a buffer between production and customer demand, helping to ensure smooth sales and service.
2. Analyze why carrying inventory is important: It allows a company to respond quickly to unexpected increases in customer demand without delays caused by production or supply chain constraints.
3. Evaluate the incorrect options: Carrying inventory does not reduce storage costs to zero; in fact, it usually increases storage costs. It also does not eliminate the need for production planning, which remains essential. Additionally, inventory does not help avoid paying suppliers; payments are still required regardless of inventory levels.
4. Recognize that the primary reason for carrying inventory is to meet fluctuations in demand and avoid stockouts, which can lead to lost sales and dissatisfied customers.
5. Conclude that carrying inventory is a strategic decision to balance supply and demand effectively, ensuring customer satisfaction and operational efficiency.