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, compared to the EOQ system
B) a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
C) it is more expensive to administer compared to the Continuous Review System
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

Quizplus · Accepted Answer

Under the Periodic Review System, inventory is ordered at predetermined intervals, which means that the planning horizon is longer and there is a higher level of uncertainty in demand. Therefore, a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system. A is incorrect because a longer planning horizon requires a higher level of safety stock. C is incorrect because the Continuous Review System requires more frequent monitoring and ordering, which can be more expensive. D is incorrect because there can be other sources of uncertainty besides demand during the delivery lead time. E is incorrect because the Periodic Review System can also have discrepancies between physical inventory and the stock record.

Which of the Following Is True Under the Periodic Review