Answer (C) is correct . A company maintains safety stocks to protect itself against the losses caused by stockouts. These can take the form of lost sales or lost production time. Safety stock is necessary because of the variability in lead time and usage rates. As the variability in lead time increases, a company will tend to carry larger safety stocks.
Answer (A) is incorrect because An increase in inventory carrying costs makes it less economical to carry safety stocks.
Answer (B) is incorrect because If the cost of stockouts declines, the incentive to carry large safety stocks is reduced.
Answer (D) is incorrect because A decline in the variability of usage makes it easier to plan orders, and safety stocks will be less necessary.
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