Question

A higher service level corresponds to a higher probability of stocking out during an inventory cycle.

a. true
b. false

Answer 1

a higher service level actually reduces the probability of a stockout because it increases the available inventory to meet customer demand.

Step-by-step explanation:

The statement 'a higher service level corresponds to a higher probability of stocking out' is false. A higher service level actually decreases the probability of a stockout. In inventory management, service level refers to the probability that the amount of inventory on hand during the replenishment cycle is sufficient to meet demand. The higher the service level, the greater the likelihood that customer demand will be fulfilled without a stockout. This means that there is more inventory available to meet unexpected increases in demand, thus reducing the chances of running out of stock.

To understand this concept, consider that service levels are typically expressed as a percentage with a range between 0% and 100%. A 100% service level would mean that there is complete certainty that all customer demand will be met without stockouts, whereas lower service levels indicate a willingness to accept a greater risk of stockouts in exchange for lower inventory holding costs. Therefore, service levels are about finding a balance between the cost of holding excess inventory and the risk of not meeting customer demand.

Answer 2

The statment a higher service level corresponds to a higher probability of stocking out during an inventory cycle is false .

The statement is incorrect; a higher service level actually corresponds to a lower probability of stocking out during an inventory cycle.

Let's delve into the concept of service level and its relationship with inventory management.

Service level is a key metric in inventory management that represents the percentage of customer demand that can be fulfilled directly from stock.

It is essentially a measure of how well a company is able to meet customer demand without experiencing stockouts.

The service level is typically expressed as a percentage, and a higher service level implies a higher level of customer satisfaction and a lower probability of stockouts.

To achieve a high service level, companies often maintain higher levels of safety stock.

Safety stock acts as a buffer against variability in demand and supply lead times, helping to prevent stockouts.

With a higher service level, businesses aim to ensure that a greater proportion of customer orders are fulfilled promptly from available inventory.

A higher service level corresponds to a lower probability of stocking out, not a higher one.

This is because a higher service level implies a more robust and responsive inventory management system that can effectively meet customer demand without disruptions.