Final Answer:
Risk pooling is an approach to risk sharing between the supplier and the buyer that involves the sharing of risks and rewards in order to improve overall profits, thus the correct option is a.
Explanation:
Risk pooling is an approach to risk sharing between the supplier and the buyer that involves the sharing of risks and rewards in order to improve overall profits. This approach is useful when the buyer and supplier have a common goal of increasing profits and are willing to work together to reduce risks. In the risk pooling approach, the supplier agrees to provide a certain level of product availability, which will help the buyer reduce its risk of not having enough stock when demand increases.
Risk pooling can be an effective way to manage risk and increase overall profits for both the buyer and supplier. The supplier will benefit from increased sales and the buyer will benefit from reduced costs. Additionally, both parties will benefit from improved product availability and reduced demand uncertainty. Risk pooling also allows for more flexibility in pricing, as the buyer and supplier can agree on mutually beneficial terms that will ensure the long-term success of the relationship.
Overall, risk pooling is an effective approach to risk sharing between the supplier and the buyer. By sharing risks and rewards, the supplier and buyer can both increase their profits and reduce their risk. This approach can be beneficial to both parties and can help them achieve their long-term goals.