Skip to content

CS Professional · Strategic Management and Corporate Finance · Business Policy and Formulation of Functional Strategy

A consumer goods firm keeps large safety stocks in many regional warehouses to guarantee same-day delivery, but its inventory carrying cost is high. It decides to reduce the number of warehouses and adopt just-in-time replenishment. Which trade-off does this logistics decision primarily involve?

The decision trades lower inventory carrying cost against a higher risk of stock-outs and longer delivery times. Fewer warehouses and just-in-time replenishment cut holding costs, but the reduced buffer stock and greater distance to customers weaken service levels.

  1. ALower inventory carrying cost against higher risk of stock-outs and longer delivery timeCorrect
  2. BHigher inventory cost against lower transport risk
  3. CLower R&D spending against faster product launches
  4. DHigher fixed assets against lower working capital in every case

Explanation

Fewer warehouses and just-in-time replenishment lower inventory holding and warehousing costs, but reduce buffer stock and increase distance to customers, raising the chance of stock-outs and slower delivery. The other options do not describe this trade-off.

Did you get it right without looking?

One question tells you little. A timed set on Business Policy and Formulation of Functional Strategy shows your real accuracy, how long you take and where you lose marks.

Practise Business Policy and Formulation of Functional StrategyFree diagnostic mock

More Business Policy and Formulation of Functional Strategy questions