A ﬂexible policy is most appropriate when carrying costs are low relative to shortage costs.

Question

Quizplus · Accepted Answer

A flexible policy, which allows for some shortage of inventory, is most appropriate when the cost of storing excess inventory (carrying costs) is low compared to the cost of facing a stockout (shortage costs). In such cases, it is acceptable to have some level of stockout and base future production on current and immediate demand.

A ﬂExible Policy Is Most Appropriate When Carrying Costs Are