Figure 7-1
Use the graph below to answer the question(s).
-Which of the following is true under the Periodic Review System:
A)a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon
B)a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon
C)it is more expensive to administer
D)The only uncertainty is the magnitude of demand during the delivery lead time
E)there are no discrepancies between physical inventory and the stock record

Question

Figure 7-1
Use the graph below to answer the question(s). 
-Which of the following is true under the Periodic Review System:
A)a lower level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon 
B)a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon 
C)it is more expensive to administer 
D)The only uncertainty is the magnitude of demand during the delivery lead time 
E)there are no discrepancies between physical inventory and the stock record

Quizplus · Accepted Answer

Under the Periodic Review System, the longer planning horizon increases the uncertainty in demand, which requires a higher level of safety stock as a buffer. Choice A is incorrect because a longer planning horizon increases uncertainty and requires a higher level of safety stock, not a lower level. Choice C is incorrect because the Periodic Review System can be less expensive to administer than other inventory control systems. Choice D is incorrect because there can be uncertainty in other factors, such as lead time variability. Choice E is not mentioned in the information provided by the graph.

Figure 7-1 Use the Graph Below to Answer the Question(s)