Safety stock is used in the situation where neither daily demand nor lead-time is stochastic.
True or False
http://dictionary.reference.com/browse/stochastic
What do you think?
I think false because safety stock is kept for cases when forecast errors occur (due to changes in daily demand or lead time), which would make daily demand and lead-time stochastic. Is this a logical interpretation?
False.
Safety stock is used in situations where either daily demand or lead time (or both) is stochastic or unpredictable. It is designed to provide a buffer against uncertain events that might disrupt the supply chain. If neither daily demand nor lead time is stochastic, and they can be accurately predicted with certainty, there may not be a need for safety stock.