In case demand in different geographical regions is about the same size and independent,aggregation increases safety inventory by the square root of the number of areas aggregated.

Question

Quizplus · Accepted Answer

Aggregation in this context typically reduces the overall safety inventory required, as it leverages the risk pooling effect, which suggests that variability in demand across different areas tends to cancel out, thus reducing the total safety inventory needed rather than increasing it.

In Case Demand in Different Geographical Regions Is About the Same