L4M7 Exam Dumps | XYZ Ltd is a large retailer who offers a range of products with different margins. The warehouse manager

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Question 58/121

XYZ Ltd is a large retailer who offers a range of products with different margins. The warehouse manager suggests that different product groups should have different level of safety stock. The appropriate level of safety stock is typically determined by...?

A. Expected stockout cost multiplies with product margin

B. Choosing the level of safety stock that assures a given service level

C. Taking the square root of the economic order quantity

D. Carrying sufficient safety stock so as to eliminate all stockouts

Correct Answer: B

Safety stock is the stock held as a contingency or insurance against disruption or unexpected de-mand.
Holding safety stock reduces the risks of stockouts, when an organisation is unable to meet an order or continue production due to lack of finished goods or input materials.
For single items, an extra investment in inventory (higher levels of safety stock) will always in-crease customer service levels. Conversely, higher service levels imply larger quantities of safety stocks and an increased investment in inventory. (Procurement and Supply Chain Management - 9th Edition) However, high levels of safety stocks also increase the inventory cost. There must be a balance between inventory costs and customer service. Thus, calculating the should-be safety stock based on a determined service level has long been recommended by many professionals.

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