Question

What is the effect of holding higher levels of inventory on a firm's capital and customer service?

Options

• It reduces customer service and frees up capital

• It improves customer service but ties up more capital

• It improves customer service and frees up capital

• It has no effect on either customer service or capital

Answer 1

Higher inventory levels improve customer service because products are readily available to meet demand. However, this ties up more capital in stock, which is why a balance between cost and customer satisfaction is needed.