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Just as the lake behind Hoover Dam has an optimal level, so does the inventory in a business. While an inventory level that is too low initially helps cash flow, it will eventually hurt it. Low inventory leads to not having enough product on-hand to fulfill manufacturing and/or customer requests. Slowing down a manufacturing process or losing a sale to a customer is devastating. Too much inventory makes it easier to fulfill customer requests but absorbs more cash than is needful and causes a strain on the business.
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