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
