BUISENESS MANAGEMENT
INVENTORY MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An organization uses a periodic review system to manage an item. A review is made every three weeks, lead time is one week, and safety stock is based on the MAD. The company wants to change to an order point system. Which of the following statements about safety stock in the order point system is true if the same level of customer service is to be maintained?
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it will increase
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it will remain the same
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it will decrease
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it is not needed
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Explanation:
Detailed explanation-1: -The fixed-period inventory model can have a stockout during the review period as well as during the lead time, which is why fixed-period systems require more safety stock than fixed-quantity systems.
Detailed explanation-2: -With periodic review systems, products are ordered at the same time each period. The number of items ordered is determined based on quantity levels at the end of each period. There is no set reorder level for periodic review systems.
Detailed explanation-3: -From the equation, you require 2, 080 units of safety stock to meet sales demand over an average lead time of 16 days while maintaining a service level of 90%. You can use 2, 080 units as your reorder level to minimize stock-outs.
There is 1 question to complete.