Which of the following statements about safety stock levels is true in a multi-echelon system?

In a multi-echelon inventory system, safety stock levels play a crucial role in balancing supply and demand while minimizing stockouts and excess inventory. The correct statement indicates that safety stock is strategically placed across the network to provide adequate cover at various stages of the supply chain. This strategic positioning ensures that safety stock is available where it is needed most, allowing each echelon (e.g., suppliers, warehouses, retailers) to respond effectively to fluctuations in demand and supply uncertainties.

Placing safety stock strategically also involves considering lead times and variability in demand and supply at each level of the hierarchy, enabling the system to operate more efficiently and improve service levels throughout the network. This approach enhances responsiveness and controls costs, providing a more adaptable and resilient supply chain.

In contrast, fixed and unchanging safety stock levels may not adequately respond to the dynamic nature of supply chain demands. Not focusing solely on future demand or treating safety stock as irrelevant can lead to disruptions. Therefore, the importance of strategic placement is foundational for effective inventory management in multi-echelon systems.