ECONOMICS

Detailed explanation-1: -Safety stock is held because we anticipate future demand. Variability in demand and/or lead time can be compensated for by safety stock. Solving quality problems can lead to lower inventory levels. ROP models assume that demand during lead time is composed of a series of dependent daily demands.

Detailed explanation-2: -D. the higher the profit margin per unit, the higher the safety stock necessary. The answer is true regarding safety stock.

Detailed explanation-3: -Safety stock is an extra quantity of a product which is stored in the warehouse to prevent an out-of-stock situation. It serves as insurance against fluctuations in demand.

Detailed explanation-4: -Anticipation Inventory vs Safety Stock The difference is that safety stock is held for unexpected events, and anticipation inventory – as the name entails – is held because you expect a run on your product at certain times.

Detailed explanation-5: -Safety stock is designed to prevent stock-outs when there is variability in your demand and supply. Changes in your mean lead time and demand affect your cycle stock but not your safety stock. By reducing the variability, you reduce your safety stock.