Final answer:
The square root law of cycle stocks indicates that cycle stocks increase as the square root of demand, which helps businesses optimize inventory and stock levels.
Step-by-step explanation:
The square root law of cycle stocks is an important concept in inventory management and logistics which suggests that the required cycle stock increases only at the square root of the increase in demand. This is based on the assumption that the underlying demand variability is relatively stable. This can have important implications for businesses as they scale up their operations.
When demand doubles, the cycle stock does not need to double. Instead, the cycle stock only needs to increase by the factor of the square root of two (√2). When using the square root law for multiple locations, the combined cycle stock needed is the square root of the sum of the squares of each location's individual demand.
Therefore, the correct answer to the student's question is option (d): cycle stocks increase as the square root of demand. This understanding can help businesses more efficiently manage inventory and optimize stock levels, leading to cost savings and better supply chain coordination.