At present,a firm has 75,000 units of safety stock located in 25 facilities.They are considering reducing the number of warehouses and consolidating to 16 facilities.What will be the new safety stock inventory as a result?

Question

Quizplus · Accepted Answer

The safety stock is typically reduced when consolidating facilities due to risk pooling. The square root law of inventory management suggests that the new safety stock can be calculated by multiplying the current safety stock by the square root of the ratio of the new number of facilities to the old number of facilities: 75,000 * sqrt(16/25) = 60,000 units.

At Present,a Firm Has 75,000 Units of Safety Stock Located