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RSI FAQ · Question 06

What are the risks of carrying too much inventory?

RSI FAQ Question 06
06
Short answer

Excess inventory ties up cash, raises storage costs, risks obsolescence, adds complexity, and hides real supply chain issues.

Excess inventory drains profitability and flexibility by unnecessarily tying up working capital.

Top five risks
  1. Working capital drag → Money tied up in stock can’t be invested elsewhere.
  2. Storage and handling costs → Warehousing, insurance, labor.
  3. Obsolescence and expiry → Especially risky in seasonal or short-lifecycle products.
  4. Hidden complexity → More SKUs = more forecasting errors, more stockouts.
  5. Complacency → Excess stock can mask supply chain problems instead of fixing them.
Example

A consumer goods firm was carrying 6 months of excess stock. When demand shifted, 30% of their inventory had to be written off.

Key takeaway

Inventory is an asset only if it’s the right inventory. Otherwise, it’s a liability.

Related Supply Chain Assessment: A1 Inventory Network Balancing Services

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