Demystify Why Businesses Maintain Their Product Supply Given the Extreme Demand
Profit maximization is the ultimate goal of most businesses. However, why do they not make more products whereas they know they will be sold out before long? In the real-life, everything is not as simple as “make more products".
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Why do companies not make more products if they know it’s going to be sold out in hours? Originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.
Why do companies not make more products if they know it’s going to be sold out in hours?
There are various reasons for this, including:
- They can only make so many items every day. Even if they run their plant 24/7, there is still a maximum number of items they can make per day.
- They could build new plants, but sometimes the time it takes to build the new plant will mean that their product(s) won’t be as popular by then.
- Building, or taking over, another plant costs money, plus the cost of running that plant. While there is demand, there may not be sufficient demand to operate the second plant (for example, if each plant can make 5,000 items per day for 10,000 total, but people may only need to buy 7,000 items per day. You are not going to acquire a second plant for only another 2,000 sales – 7,000 instead of 5,000 – it’s just not feasible).
- They might not be able to get more products to the stores faster. Stores and warehouses can only hold so many items per day and they are storing more than just on product.
- An item can suddenly become popular but then demand can diminish just as fast.
- Real life is not as simple as “make more products.”
Contributed by Edward Brain, Blogger and Freelance Consultant.