The purpose of safety stock is to
A) replace failed units with good ones
B) eliminate the possibility of a stockout
C) eliminate the likelihood of a stockout due to erroneous inventory tally
D) control the likelihood of a stockout due to the variability of demand during lead time
E) protect the firm from a sudden decrease in demand

Question

Quizplus · Accepted Answer

Safety stock is held to mitigate the risk of stockouts caused by variability in demand during lead time. It acts as a buffer to ensure that there is enough inventory to fulfill customer demand even if demand is higher than expected or lead time is longer than usual. Therefore, option D is the best choice. The other options do not fully represent the purpose of safety stock.

The Purpose of Safety Stock Is to