If demand forecasting is poor, what is a likely consequence for inventory turnover?

If demand forecasting is poor, what is a likely consequence for inventory turnover?

• A. High turnover
• B. Turnover becomes negative
• C. No effect
• D. Low turnover due to overstock or spoilage

Answer: (D)

Demand forecasting guides how much inventory to buy. When forecasting is off, you may stock too much, and in a kitchen that means ingredients sit on shelves and can spoil before use. That overstock raises your average inventory, but the rate at which you actually sell or use that inventory doesn’t rise in the same way, so the turnover ratio drops. Spoilage further reduces usable inventory, making turnover even slower. So poor forecasting tends to produce low turnover because of excess stock and waste, rather than faster movement of items. It wouldn’t lead to higher turnover because the presence of excess inventory slows the rate of turn, and turnover isn’t negative in standard practice; no effect would ignore the waste and carrying costs that forecasting errors cause.

Demand forecasting guides how much inventory to buy. When forecasting is off, you may stock too much, and in a kitchen that means ingredients sit on shelves and can spoil before use. That overstock raises your average inventory, but the rate at which you actually sell or use that inventory doesn’t rise in the same way, so the turnover ratio drops. Spoilage further reduces usable inventory, making turnover even slower. So poor forecasting tends to produce low turnover because of excess stock and waste, rather than faster movement of items. It wouldn’t lead to higher turnover because the presence of excess inventory slows the rate of turn, and turnover isn’t negative in standard practice; no effect would ignore the waste and carrying costs that forecasting errors cause.