Due to the unpredictable nature of our society and markets, it is sometimes imperative to hold stocks to a certain level at the various stages of the supply chain. The following are reasons why the warehouses need to hold inventory:
Uncertain and irregular demand patterns: The demands of certain kind of products are vastly unpredictable, and holding stocks might be the main option to ensure on-time supply to the customer. Examples include the supply of
umbrellas and ice-cream, whose demands revolve around the irregular changeability of the weather.
Trade-offs to justify larger shipments: There are times when offers in transportation cannot be refused; for example, when transporting larger quantities causes lower cost per unit. As this instance, the trade-off is between cost of storage of additional goods and the relatively higher cost of transporting fewer goods.