Future Business Leaders of America (FBLA) Entrepreneurship Practice Test

In a just-in-time inventory system, which is not a risk associated with minimizing inventory?

1. Increased carrying costs to store inventory

2. Stockouts leading to lost sales

3. Supply chain disruption leading to delays

4. Increased shipping costs

The correct answer is: Increased carrying costs to store inventory

In a just-in-time inventory system, the key focus is on reducing inventory levels to enhance efficiency and reduce costs associated with holding large amounts of stock. The correct answer identifies a factor that does not align with the inherent risks of maintaining minimal inventory. Minimizing inventory is aimed at reducing carrying costs, which include expenses related to storing unsold goods such as warehousing fees, insurance, and depreciation. Since the goal of a just-in-time system is to keep inventory levels low, increased carrying costs would not typically be a risk associated with this approach. Rather, the system strives to minimize such costs by ensuring that inventory is available only as needed for production or sales. On the other hand, stockouts can occur when there is insufficient inventory to meet consumer demand, which could lead to lost sales. Additionally, supply chain disruptions could lead to unexpected delays, significantly impacting the ability to meet customer demand promptly. Increased shipping costs can arise frequently due to the necessity of expedited deliveries to restock inventory, especially when maintaining low stock levels. Thus, identifying that increased carrying costs do not correlate with the minimization strategy underscores the intention of a just-in-time system to keep inventory costs as low as possible while increasing efficiency.