Overproduction occurs when a certain output is produced in excess of what is required.

In
manufacturing processes, where things are frequently manufactured and stocked for eventual sale,
avoiding overproduction can be difficult. This issue can arise for a number of reasons.

Batch production is a typical approach that is frequently promoted as a best practice for achieving
economies of scale. Economies of scale are the cost savings that come from increasing a product's
output. It happens because of the inverse relationship between amount produced and fixed expenses
per unit. This occurs because the higher the quantity of a product produced, the cheaper the per-unit
fixed cost will be since the costs will be spread across a larger number of units. Due to operational
efficiency and synergies, economies of scale may also cut unit variable costs.

When the output level reaches a threshold where the organization must invest additional expenses to
warehouse, protect, and move the additional inventory, this favourable scenario deteriorates. There is
also a risk of theft and damage when products are held for later sale.

Organizations execute cycle counts and physical counts to handle these hazards, as well as build/rent
and employ climate-controlled facilities, install access controls, and build an infrastructure to address
overproduction in general, incurring expenditures that would not exist if production matched demand.