Question

Safety stock can be computed when using the fixed-order quantity inventory model by multiplying a "z" value representing the number of standard deviations to achieve a service level or probability by the standard deviation of periodic demand. True or false?

Answer 1

Answer:

TRUE

Explanation:

The Z value determinates the level of service at a normalize distribution of (0;1) We then convert this value to the deviation of our distribution by multiplying each other.

The Z value represent the the value at which a 99% or 95% or whatever percent of change of safety is achieve. We convert by our deviation to adapt the normalize distribution of (1;0) to our values.

There is always a chance for stock-out as we work with probabilities and at more higher safety level we require more units to make up for the change of a single customer from nowhere purchase an unexpected amount. As this person can appear anytime and purchase any amount there is always a level of uncertain (5% or  1% or less)