Firms hold safety stock to compensate for
A) mathematical weaknesses of the Economic Order Quantity model
B) variations in lead time or daily demand
C) fluctuations in carrying costs
D) uncertainty in the estimation of ordering costs

Question

Quizplus · Accepted Answer

Safety stock is usually held to compensate for variations in lead time or daily demand, which cannot be predicted with accuracy. Safety stock helps to ensure that there is enough inventory available to meet customer demand even when unexpected events occur. It is not related to mathematical weaknesses of the EOQ model, fluctuations in carrying costs, or uncertainty in the estimation of ordering costs.

Firms Hold Safety Stock to Compensate for