5. Which of the following statements is false? a. Cycle stock is designed to cover demand...
5. Which of the following statements is false?
a. Cycle stock is designed to cover demand during lead time.
b. Safety stock is set based on the standard deviation of forecast errors.
c. Inventory needed in case suppliers cannot deliver as promised is also part of safety stock.
d. If forecast error can be increased, safety stock can also be reduced.
Homework Answers
a. Cycle stock is designed to cover demand during lead time.
The sales that are forecasted by the Firm are met with the help of cycle stock while it is the buffer in the form of safety stock that is designed to cover the demand during the lead time. Hence, option A is a false statement out of the above options and therefore the correct option.
Option B is eliminated because safety stock indeed considers the standard deviation of forecasted errors, besides service factor and other parameters. Option C is eliminated because safety stock is the backup stock that is available when the Suppliers fall short of inventory in order to deliver its promise. Option D is also eliminated because, more the error in forecasting, wrong shall be the judgment of safety stock requirements and thus safety stock shall get impacted accordingly.
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