Certified Materials and Resource Professional Practice

Question: 1 / 400

What could inadequately predicted demand result in?

Overstock and increased costs

Understock and lost sales

Both overstock and understock conditions

Inadequately predicted demand can indeed lead to both overstock and understock conditions. When demand is overestimated, it results in overstock situations, where the inventory levels exceed the actual customer demand. This can increase storage costs, lead to excess capital tied up in unsold goods, and require potential markdowns to clear out surplus inventory. On the other hand, if demand is underestimated, it creates understock scenarios, where there are insufficient goods available to meet customer requests. This can lead to lost sales opportunities, dissatisfied customers, and potential damage to brand reputation.

The dual nature of demand forecasting issues is crucial in supply chain management, as both scenarios can have significant financial implications. Therefore, effective demand forecasting is vital in optimizing inventory levels, minimizing costs, and ensuring customer satisfaction.

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