Question

Which of the following relationships accurately describes the impact of safety stock on customer service level and inventory investment?

A) As safety stock increases, the customer service level decreases and inventory investment decreases.

B) As safety stock increases, the customer service level increases and inventory investment decreases.

C) As safety stock decreases, the customer service level decreases and inventory investment increases.

D) As safety stock decreases, the customer service level increases and inventory investment decreases.

Answer 1

The correct principle states that increased safety stock leads to a higher customer service level due to more available stock to respond to demand, but it also results in increased inventory investment because of the higher volume of goods held.

Step-by-step explanation:

The relationship that accurately describes the impact of safety stock on customer service level and inventory investment is that as safety stock increases, the customer service level also increases, because there is more stock on hand to meet unexpected demand.

However, holding more safety stock also means a higher inventory investment because a company holds more goods in stock than might be deemed necessary for normal operations.

The correct answer to the student's question, therefore, is not listed among the options provided, but the principle that aligns closest is the inverse: As safety stock increases, the customer service level increases, and inventory investment increases as well.