CAF-5 · Chapter 16 · Question 5 of 10
Why do manufacturing companies maintain a "Safety Stock" (buffer stock)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) To protect the business against stock-outs caused by unpredictable fluctuations in demand or delays in lead time.
Explanation
Safety stock acts as a buffer. If demand during the lead time is higher than average, or if the supplier takes longer than average to deliver, the safety stock ensures production does not halt.
More Inventory Management MCQs
- Q7When evaluating whether to accept a bulk purchase discount from a supplier, which of the following financial trade-offs must be assessed?
- Q8If a company uses the Economic Order Quantity (EOQ) model and also maintains a permanent safety stock, how is the "average inventory…
- Q9Which of the following is an example of an "ordering cost" in inventory management?
- Q10Which of the following is a practical limitation or underlying assumption of the basic Economic Order Quantity (EOQ) model?
- Q1What is the primary objective of using the Economic Order Quantity (EOQ) model in inventory management?