What is a critical risk associated with holding excess inventory?

Holding excess inventory can lead to a critical risk known as the loss of stock value over time. This phenomenon occurs because inventory, especially if it is perishable or has a limited shelf life, can deteriorate in quality, become obsolete, or go out of fashion, all of which negatively affect its market value. Additionally, the costs associated with maintaining excess inventory—such as storage, insurance, and potential obsolescence—can erode profit margins. When inventory is not sold in a timely manner, businesses may have to sell it at discounted prices, which further compounds the loss.

The other options do not align with the inherent risks of excess inventory. For instance, while an increase in supplier trust might be beneficial, it is not a direct consequence of holding excess inventory. Similarly, improved customer satisfaction and enhanced stock variety represent potential advantages rather than risks. Thus, the most critical risk identified is the depreciation of stock value over time.