When setting optimal levels of product availability in practice,it is important to

A) obtain a reasonable estimate of the cost of stocking out.
B) obtain a very precise estimate of the cost of stocking out.
C) focus on the most responsive production method,even if it is not low cost.
D) develop a preset target of product availability.

Question

Faith Taylor · Accepted Answer

Final Answer : A, Explanation :  Obtaining a reasonable estimate of the cost of stocking out is important in setting optimal levels of product availability as it helps determine the trade-off between the cost of stocking inventory versus the cost of lost sales due to stockouts. A very precise estimate of the cost of stocking out may not be necessary as it may not be possible to determine this value exactly, but a reasonable estimate can guide decision making. Focusing on the most responsive production method or developing a preset target of product availability may not necessarily consider the cost implications and may not result in optimal inventory levels.

Definitions

Learning Objectives

Learning Objectives

Related questions