The proper quantity of safety stock is typically determined by:
A) using a single-period model.
B) carrying sufficient safety stock so as to eliminate all stockouts.
C) multiplying the EOQ by the desired service level.
D) setting the level of safety stock so that a given stockout risk is not exceeded.
E) minimizing total costs.

Question

Quizplus · Accepted Answer

The proper quantity of safety stock is typically determined by setting the level of safety stock so that a given stockout risk is not exceeded. This involves taking into account factors such as lead time variability and demand variability to ensure a certain level of service is maintained while minimizing excess inventory. Option A is incorrect because single-period models are used to make inventory decisions for a one-time purchase or production run, not for managing ongoing inventory levels. Option B is incorrect because carrying sufficient safety stock to eliminate all stockouts is not feasible or cost-effective. Option C is incorrect because multiplying the EOQ by the desired service level may not account for the variability in demand and lead time. Option E is incorrect because minimizing total costs may not necessarily result in the proper quantity of safety stock to maintain a certain level of service.

The Proper Quantity of Safety Stock Is Typically Determined By