The fixed-period inventory system requires more safety stock than a fixed-quantity system because:
A) a stockout can occur during the review period as well as during the lead time.
B) this model is used for products that have large standard deviations of demand.
C) this model is used for products that require very high service levels.
D) replenishment is not instantaneous.
E) setup costs and holding costs are large.

Question

Quizplus · Accepted Answer

In a fixed-period inventory system, the inventory level is not checked continuously, but rather at fixed intervals. Therefore, a stockout can occur during the review period as well as during the lead time. As a result, more safety stock is required to prevent a stockout during the review period.

The Fixed-Period Inventory System Requires More Safety Stock Than a Fixed-Quantity