Question

PlastiPharm has several clients whose contracts require the company to store three to six months of raw materials for them just in case they require a quick turnaround for an order, something that rarely happens. As the contracts come up for renewal, PlastiPharm intends to renegotiate the contract terms to reduce or, ideally, eliminate the inventory clause. Why should PlastiPharm care about excess inventory?

Answer 1

The reason why PlastiPharm should care about excess inventory is:

• It can lead to the degradation of the raw materials

What is Excess Inventory?

This refers to the situation where there is a product that is yet to be sold due to the excess estimated demand for the product which leads to the overstock of the product.

With this in mind, we can see that PlastiPharm should be worried about the excess inventory because it can lead to the degradation of the raw materials as they are overstocked.

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