Final answer:
Holding one standard deviation of safety stock would typically provide a service level of approximately 68%, not matching any of the options listed in the question. The empirical rule is used to estimate this, and the closest incorrect option provided is 85% which is still above one standard deviation.
Step-by-step explanation:
When management is calculating the safety stock levels for a product based on the standard deviation of demand, they are utilizing statistical measures to mitigate potential stockouts and maintain a desired service level. The service level corresponds to the probability of not running out of stock and is associated with the amount of safety stock held. A commonly used rule in inventory management is the empirical rule or the 68-95-99.7 rule which suggests that roughly 68% of the data falls within one standard deviation of the mean, 95% within two standard deviations, and 99.7% within three.
Therefore, if a company decides to keep one standard deviation worth of product as safety stock, they could expect to achieve a service level of approximately 68% (since this is the percentage of time the actual demand will be less than the mean plus one standard deviation). This is not reflected in the options given where the closest incorrect options are 90% which applies to nearly two standard deviations and 85% which is closer to but still above one standard deviation.
Nevertheless, for accurate results, companies often incorporate additional factors into their service level calculations, like lead time, demand variability, service level targets, and stockout costs. However, based on standard statistical norms one standard deviation of safety stock would not provide service levels as high as the options listed; hence none of the listed options reflect the correct service level expected with one standard deviation of safety stock.