Question

Snyder Industries uses 100,000 widgets each year. If Snyder decides to place more orders each year, ordering fewer widgets each time, Snyder will be carrying ___ inventory on average and the risk of running out of inventory will ___.

A. more; fall
B. less; fall
C. more; rise
D. less; rise

Answer 1

If Snyder Industries orders widgets more frequently in smaller quantities, it will carry less inventory on average but face a higher risk of running out of inventory. The option is d.

Step-by-step explanation:

When Snyder Industries decides to place more orders throughout the year for widgets and orders fewer units each time, it will be carrying less inventory on average.

With the frequency of orders increasing, the company is less likely to have a large stockpile at any given time. However, the downside to this approach is that the risk of running out of inventory will rise, because there is less buffer stock on hand to cover for delays or surges in demand.

If the company manages this process well, it can minimize that risk.