Which of the following criteria is used to determine safety stock in a distribution center...

Safety stock is a type of inventory that is held in excess of the expected demand to protect against uncertainties such as demand variability, lead time variability, or supply disruptions. Safety stock can help to reduce the risk of stockouts, which are situations where the inventory level falls below thedemand level and the customer orders cannot be fulfilled. Safety stock can be determined by using different methods, such as statistical models, service level policies, or empirical rules. One of the common criteria that is used to determine safety stock in a distribution center (DC) is the probability of stocking out, which is the likelihood that the inventory level will be insufficient to meet the demand during a replenishment cycle. The probability of stocking out can be calculated by using the normal distribution, assuming that the demand and lead time are normally distributed. The probability of stocking out can also be expressed as the complementary value of the service level, which is the percentage of customer orders that can be satisfied from the available inventory. A higher probability of stocking out implies a lower service level and a lower safety stock. A lower probability of stocking out implies a higher service level and a higher safety stock.

References: CPIM Exam Content Manual Version 7.0, Domain 7: Plan and Manage Distribution, Section 7.2: Implement Distribution Plans, Subsection 7.2.2: Describe how to implement inventory management techniques in distribution (page 68).