Certified Supply Chain Professional (CSCP) Practice Exam

Which of the following factors is essential for safety stock calculation?

1. Accuracy of environmental forecasts

2. Length of the supply chain

3. Frequency of ordering

4. Average selling price of items

The correct answer is: Frequency of ordering

The frequency of ordering is crucial for safety stock calculation because it directly impacts how inventory levels are maintained and how quickly stock can be replenished. When determining the appropriate amount of safety stock to hold, businesses must consider how often they place orders to restock inventory. A higher frequency of ordering typically requires less safety stock because the replenishment occurs more frequently, reducing the risk of stockouts. Conversely, if orders are placed less frequently, there is a greater risk of running out of stock before the next order arrives, necessitating a larger safety stock to buffer against demand fluctuations. In contrast, while environmental forecasts could influence demand planning, they do not specifically dictate the amount of safety stock required. The length of the supply chain primarily affects lead times and logistics considerations, but it's not a direct input for calculating safety stock levels. The average selling price, although important for revenue and profitability, does not influence the stock level needed to maintain operational effectiveness in relation to demand variability. Thus, the frequency of ordering stands out as the most relevant factor for calculating safety stock.