What is one consequence of high inventory turnover?

High inventory turnover means that a company is selling through its inventory quickly. This typically indicates strong sales and efficient inventory management. However, one of the primary consequences of maintaining a high turnover rate is the potential for stock shortages. As inventory moves quickly, there may not be enough stock on hand to meet ongoing customer demand, leading to lost sales opportunities and dissatisfied customers. This can necessitate emergency restocking, which may disrupt operations and increase costs.

In contrast, while high inventory turnover benefits cash flow and reduces holding costs, a downside to watch for is indeed the risk of stock shortages if inventory levels are not managed carefully. High turnover requires meticulous forecasting and timely reordering to prevent any gaps in stock, ensuring that customer needs are consistently met without delay.