As interest rates rise, the cost of borrowing and the opportunity cost of holding inventory increase. Suppliers are likely to reduce their inventory levels to minimize these costs, which in turn raises the risk of stock outs.
Higher holding costs make it less attractive for suppliers to maintain large inventories, leading them to operate with leaner stock levels. This can cause delays and shortages if demand unexpectedly increases or if there are disruptions in the supply chain. References:
* Financial Management: Theory & Practice by Eugene F. Brigham and Michael C. Ehrhardt.
* Inventory Management and Production Planning and Scheduling by Edward A. Silver, David F. Pyke, and Rein Peterson.