In light of events such as the worldwide pandemic, natural disasters, and climate change, supply chains can become unstable and unreliable. In this context, enterprises are greatly motivated toward inventory warehousing and stock accumulation. Firstly, it will allow them to meet changing market conditions. Given the ability to predict seasonal demand fluctuations and supply chain disruptions, companies receive an opportunity to have a solid competitive edge in the market. However, this requires access to large quantities of stock readily available for customers when the time comes.
Another reason behind significant stock accumulation lies in taking advantage of quantity purchases. Supply chain disruptions imply that the number of conducted transportations might decrease dramatically. Consequently, enterprises have to compensate for low transportation frequency by increasing the number of goods transported in a single shipping (Zimon et al., 2021). Moreover, this practice also reduces overall costs due to the access to quantity discounts and forward buys. In times of crisis, any opportunity to reduce costs will be heartedly welcomed. In turn, larger shipments will require larger warehouses, respectively.
Finally, the companies are motivated to increase their inventory in order to support customer service policies. For instance, after the COVID-19 outbreak, various businesses struggled to continue their operation due to supply shortages and, thus, the inability to supply the required resources. This tendency was mainly related to small and medium enterprises, whereas large enterprises did manage to maintain operations due to larger inventories (Zimon et al., 2021). If the enterprise is large and wealthy enough, there is a high probability it will not go bankrupt before the supply chain is restored. However, being unable to fulfill pending orders and agreements with partners and customers would severely damage their reputation, which might have poor outcomes in the long run. Therefore, to protect their reputation, large enterprises would opt for greater shipment orders and aim to increase their inventory.
Reference
Zimon, G., Babenko, V., Sadowska, B., Chudy-Laskowska, K., & Gosik, B. (2021). Inventory management in smes operating in polish group purchasing organizations during the COVID-19 pandemic. Risks, 9(4), 63. Web.