The Farmingham Company faces very uncertain demand.A simple way of altering its EOQ-based inventory system to account for the uncertainty is to:

Question

Quizplus · Accepted Answer

Adding a safety stock would be the best choice to account for uncertain demand. A safety stock is an additional quantity of inventory that is held to protect against stockouts caused by demand variability or lead-time variability. It acts as a buffer and ensures that the company has enough inventory to meet customer demand even during periods of high demand or unexpected fluctuations in demand. Increasing the size of every order or slowing production whenever sales trends change may not be feasible or efficient, and stocking only finished goods inventories may result in running out of stock for certain products. Therefore, adding a safety stock is the best option.

The Farmingham Company Faces Very Uncertain Demand