14 Identify and explain two possible problems for Saltan of having a high level of inventory. [4]

[BASEL Moderator]

Saltan makes a range of cars. The level of inventory is too high so it plans to decrease production at its factory. Employees were told the business needs to reduce the size of its workforce as competition is increasing. The trade union is not happy that 360 of the 1200 skilled full time employees at Saltan will be made redundant. A trade union spokeswoman said: ‘Saltan should reduce the number of hours of every employee rather than reduce the number of jobs.’ Saltan’s Operations Director is considering ways to increase efficiency in the factory.

14 Identify and explain two possible problems for Saltan of having a high level of inventory. [4]

Possible KN Points:
• Cash flow/liquidity problems/tie up working capital
• Additional storage costs
• Additional security costs/risk of theft
• Risk of wastage/damage
• Opportunity cost
• Lack of space for production
• Insurance costs