Sometimes things happen that cause managers to reevaluate their normal purchasing

patterns. Consider, for example, the predicament that businesses faced when the price

of many raw materials recently skyrocketed. Rubber, cotton, oil, corn, wheat, steel,

copper, and spicesprices for seemingly everything were going straight up. Anticipating

that prices might continue to go up, many managers decided to stockpile much larger

quantities of raw materials to avoid paying even higher prices in the future. For

example, after cotton prices rose 92%, one manager of a printed T

shirt manufacturer

decided to stockpile a huge supply of plain T

shirts in anticipation of additional price

increases. While he normally has about 30 boxes of T

shirts in inventory, he purchased

2,500 boxes.

Source:

Liam Pleven and Matt Wirz, "Companies Stock Up as Commodities Prices

Rise,"

Wall Street Journal Online

(February 3, 2011)

what are the potential downsides of stockpilling a huge amount if raw material? (go to wileyplus for this answer and additional questions)