The amount of inventory you should hold is a fine balancing act between meeting current demand and any future excess demand while not tying up too much of your cash in stock. While carrying stock is great for avoiding shortages, it does incur extra costs – you use the money you could be investing elsewhere and making interest income on, and there are extra costs involved in storing the stock, for example, renting a bigger warehouse space. For certain industries, the shelf life will also be a limiting factor.