Variability of lead time

Variability of lead time
A . 1 and 3 only
B . 1 and 2 only
C . 2 and 4 only
D . 3 and 4 only

View Answer

Answer: D

Explanation:

Safety stock is also known as buffer stock. As this name suggests, this type of stock provides some kind of ‘buffer’, which means safety stock will help the business to reduce the shocks induced by volatile demand or disruption on the supply chain. In other words, safety stock will reduces the probability of stockouts. The following graph would explain the reason why an organisation should have safety stock:

Figure 1: Safety stock graph

As it is only the buffer against uncertainty, safety stock level should be equal to the deviation of demand or replenishment time. Safety stock should be able to accommodate variance of demand and variance of lead time.

Reference:

– Safety stock explained

– CIPS study guide page 84-86 LO 2, AC 2.1