Which of the following best describes the relationship between a service level and safety stock?

Which of the following best describes the relationship between a service level and safety stock?

A. A safety stock is not always required to achieve a required service level

B. A service level decreases in proportion to a decrease in safety stock

C. When safety stock is zero the service level always equals zero.

D. A service level increases in proportion to an increase in safety stock

View Answer

Answer: D

Explanation:

Safety stock is an additional quantity of an item held in the inventory to reduce the risk of stockouts, which may be caused by fluctuations in supply or demand. Generally, as you increase the safety stock, the service level, which represents the expected probability of not hitting a stockout, also increases. This is because having more safety stock can help in accommodating unexpected surges in demand, thereby maintaining a higher service level.

Now, let’s evaluate each option:

A. This option is not entirely true because having a safety stock generally helps in achieving a higher service level, though depending on various factors a certain service level might be achievable without safety stock.

B. This could be a viable option too, but it’s not as straightforward as option D. The relationship might not always be proportional.

C. This option is not always true. Even with zero safety stock, there might be a non-zero service level, depending on other factors like lead time, demand rate, etc.

D. This is the most accurate description of the general relationship between safety stock and service level. It reflects the direct positive impact of safety stock on service level.

So, the best choice here is option D.