Final answer:
Dividing the company's finished goods among three warehouses illustrates the risk management strategy of separation, which reduces potential loss by spreading out risk across multiple locations. This concept is akin to diversification in financial investments, and aligns with the geographical concept of bulk reducing. The correct option is A.
Step-by-step explanation:
In reviewing his company's operations, a risk manager recommended that the finished goods be divided among three warehouses to prevent all of the finished goods from being destroyed by the same peril. Dividing the finished goods among three warehouses illustrates separation.
This strategy is a form of risk management that aims to minimize the impact of a potential loss by spreading out risk across multiple locations. By doing so, the company can ensure that not all inventory is affected by a single incident, such as a fire or natural disaster.
This concept is similar to diversification in financial investments, where investors are advised to spread their investments across a range of companies to minimize the impact of any one company's poor performance.
Such a separation of inventory aligns with the idea that placing all inventories in a single location can lead to a greater risk of total loss, whereas spreading them out can help in risk reduction.
This can be compared to the concept of bulk reducing in geography, where it makes sense to distribute production steps to minimize transportation costs and mitigate potential risks associated with the storage or transport of the final product.