The greater the cost of running out of inventory, the more safety stock that the company must hold. See the correct answer for a complete explanation.
The greater the dissatisfaction that customers have in the case of a stockout, the more safety stock that the company must hold. See the correct answer for a complete explanation.
The more uncertain the sales forecast, the more safety stock the company will need to keep. Therefore, the level of uncertainty of the future sales does impact the level of safety stock. See the correct answer for a complete explanation.
The amount of safety stock that a company is required to hold will be affected by: 1) the variability of the lead time, 2) the variability of the demand for the product, and 3) the cost of stockout. The more variable either of the first two items, the more safety stock the company will need to guard against stockouts in the case of an unusually high demand or an unusually long lead time. If these items are more consistent and predictable, the company can reduce the amount of its safety stock because there is a smaller chance of needing so many items in stock. The greater the cost of a stockout, the more safety stock the company will need to keep because the potential loss from a stockout is higher.
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