A firm sells a product whose demand over the next couple years will be stable (s

Question

A firm sells a product whose demand over the next couple years will be stable (so the order up-to model is used to manage its inventory). When the demand uncertainty is small (for example, the weekly demand has a mean of 100 and a standard deviation of 5), the main benefit of reducing the lead time is

to reduce the expected on-hand inventory at the end of every period.

to enable us to use the reactive capacity.

to reduce the pipeline stock.

none of the above.

to reduce the expected on-hand inventory at the end of every period.

to enable us to use the reactive capacity.

to reduce the pipeline stock.

none of the above.

Explanation / Answer

solution.

to reduce the pipeline stock is the correct answer.

this is due to the reason that according to little's law the pipeline tock is considered to be directly propotional to the lead time. so when the pipeline stock i reduced the lead time will also be reduced. so when the uncertainly is small the reduced lead time will have less impact over the on hand inventory

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