Drawbacks of buffer stock

• Drawbacks of holding buffer stock

  • Firms need to consider how much buffer stock to hold as there are costs involved
  • Storage costs include rent for the warehouse and also the non-obvious costs of heating, lighting, refrigeration, security, etc.
  • Wastage costs are the costs of throwing away useless stock. The longer a business holds stock, the more likely it is to create waste. Stock gets physically damaged or perishable food spoils as time goes on
  • Capital tied up in stock is unproductive and could be used more productively elsewhere
• In dynamic markets there could be high wastage as things change very quickly and can go out of fashion
• Opportunity cost

  The benefit that could be gained if the money was spent elsewhere