underbuying

Underbuying is a condition in which buyers acquire less of a good or service than would be optimal given their needs. It occurs when demand remains unmet because of budget constraints, price fear, stockouts, or uncertainty about future availability or costs. The concept is related to, but distinct from, underutilization or shortages, focusing specifically on the gap between desired and actual purchased quantities.

In consumer markets, underbuying can arise when households face high prices, limits on credit, or concerns about obsolescence, leading them to defer or reduce purchases. In business and public procurement, underbuying occurs when organizations order smaller quantities than required to sustain operations or projects, often due to tight budgets, forecasting errors, risk aversion, or rigid procurement rules. Demand signals, information asymmetry, and market volatility can also contribute to underbuying across sectors.

Consequences of underbuying include higher per-unit costs from smaller orders, increased risk of stockouts and production delays, and potential inefficiencies from repeated ordering or emergency replenishment. It can also limit economies of scale and hinder long-term planning and competitiveness. Conversely, underbuying may reduce storage costs or waste in cases where demand proves lower than expected.

Measuring underbuying involves comparing actual purchases to an estimated optimal quantity based on expected demand and lead times. Mitigation strategies include more accurate forecasting, flexible or multi-year contracting, safety stock policies, and supplier-managed inventory. Policy tools such as price stability measures or subsidies can also reduce underbuying in public programs, helping align procurement with actual needs.