COST ACCOUNTING
INVENTORY AND PRODUCTION MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Protect against uncertainty in the supply of goods and customer needs
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closing the waiting time or delay in delivery from the supplier
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increase the amount of inventory stock
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Need Variation
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Detailed explanation-1: -Safety stock protects you against the sudden demand surges and inaccurate market forecasts that can happen during a busy or festive season. It serves as a cushion when the products you’ve ordered take longer to reach your warehouse than you expected.
Detailed explanation-2: -Recalling that safety stock is a function of three main factors: uncertainty in the forecast, the number of says to cover (order period), and the confidence factor of the product.
Detailed explanation-3: -Finally, you may not need safety stock if your suppliers are consistent with how many units they can produce, and how quickly they can deliver it. Additionally, having the ability to acquire the same product from several suppliers means you can have a back up plan and don’t need extra inventory.
Detailed explanation-4: -Letting Safety Stock Decline as Supplier Lead Time Reduces Safety stock helps to address variability in your supply chain and demand, so supplier lead time should not impact your safety stock, only your cycle stock. You should always safeguard your inventory by looking at the standard deviation time.