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Marketing Basics - Kotler Philip

Inventory Maintenance

The decision on the level of inventories is another decision in the sphere of distribution of goods that affects customer satisfaction. The marketer would like the company to have stocks of goods sufficient for the immediate fulfillment of all customer orders. However, maintaining such large reserves for the company is unprofitable. As customer service levels increase, the cost of maintaining inventory is growing rapidly. Management will need to know whether sales and revenues will increase sufficiently to justify an increase in inventory. Only after that it can decide whether to order additional batches of goods, and if ordered, in which quantities.