Final answer:
Statements I ('A' items should be reviewed continuously) and III ('C' items should be replenished in larger quantities) are correct. Statement II may not be universally applicable to 'B' items as safety stock levels can vary. Thus, the correct option is c, which indicates both statements I and III are correct.
Step-by-step explanation:
The question posed refers to inventory management and the classification of inventory items into 'A', 'B', and 'C' categories, a concept known as the ABC analysis in operations management. The ABC analysis sorts inventory items based on their importance to the business, with 'A' items being the most valuable, 'B' items being of moderate value, and 'C' items being the least valuable in terms of inventory costs and usage.
Inventory Management using ABC Analysis
'A' items are high-value products with low sales frequency and therefore require regular review and tight inventory control. Continuous review ensures that stocks are maintained at optimal levels, preventing both excess stock and stock outs. This justifies statement I as correct.
'B' items are of moderate value and sales frequency. They need a good balance of control between 'A' and 'C' items. Although keeping safety stock is essential to prevent stock outs, they do not need to have low levels of safety stock necessarily, which indicates that statement II might not be universally correct, as the appropriate level of safety stock for 'B' items can vary based on several factors.
'C' items consist of low-value products with high sales frequency. It is cost-effective to manage them by replenishing in larger quantities due to their lower cost, decreasing the number of orders and hence order costs. This makes statement III correct.
Therefore, the correct answer for this question would be that statements I and III are correct, denoting option c.