The amount of safety stock that a firm carries depends upon
A) the predictability of inventory usage.
B) the time period necessary to fill inventory orders.
C) the riskiness of the storage facility.
D) the predictability of inventory usage and the time period necessary to fill inventory orders.

Question

Quizplus · Accepted Answer

The amount of safety stock that a firm carries depends upon the predictability of inventory usage and the time period necessary to fill inventory orders. If inventory usage is highly predictable and the lead time to order replenishments is short, then less safety stock needs to be on hand. However, if usage is unpredictable or the lead time is long, then more safety stock is needed to avoid stockouts. The riskiness of the storage facility may be a consideration, but it is not the primary factor in determining the amount of safety stock needed.

The Amount of Safety Stock That a Firm Carries Depends