Certified Supply Chain Professional (CSCP) Practice Exam

What is one reason that safety stock levels may increase with more warehouses?

1. Higher demand for products

2. Increased storage capabilities

3. Greater variability in transportation availability

4. More locations of inventory lead to redundancy

The correct answer is: More locations of inventory lead to redundancy

The rationale behind the answer regarding the increase in safety stock levels with more warehouses revolves around the concept of redundancy in inventory locations. When multiple warehouses are utilized, each location may maintain its own safety stock to better respond to local demand fluctuations or disruptions. This decentralization inherently leads to an increase in the overall safety stock levels because each warehouse aims to ensure availability for its respective customer base, resulting in multiple inventories being held to safeguard against stockouts at each site. Additionally, having more locations can lead to variability in inventory management practices, forecast accuracy, and service levels across different warehouses. Each facility might independently calculate its safety stock needs based on local conditions, which could compound the total amount of safety stock across the distribution network. This localized approach to safety stock is intended to manage risks more effectively, but it can also mean that more inventory is tied up in safety stocks across various warehouses, contributing further to increased levels overall. Higher demand, increased storage capabilities, and transportation variability do not inherently increase safety stock levels as directly or significantly as the redundancy created by more locations, since these factors could be managed differently depending on the operational strategies employed.