The amount of safety stocks held by a firm generally

Question

Quizplus · Accepted Answer

Safety stock levels are influenced by several factors, including the uncertainty of demand forecasts, the costs associated with stockouts (including lost sales and goodwill), and the potential for delays in receiving shipments. As these factors increase, the need for safety stock also increases to buffer against these uncertainties and potential costs. Conversely, as the cost of holding inventory increases, firms might seek to minimize inventory levels, but this does not change the fact that the factors listed in options A, B, and C would still lead to an increase in safety stock levels. Therefore, all the given options correctly describe situations that would generally lead to an increase in the amount of safety stocks a firm holds.

The Amount of Safety Stocks Held by a Firm Generally