Risk pooling enables a lower total inventory level without affecting service levels based on which...

Risk pooling helps reduce total inventory levels without affecting service levels by leveraging the principle that aggregate demand is more stable and predictable than disaggregate demand. Here’s the rationale:

Inventory turnover ratio: Lowering the ratio does not directly relate to risk pooling.

Aggregate demand: Combining demand across multiple locations or products reduces variability, leading to lower safety stock requirements and overall inventory levels.

Planning time fence: Adjusting this does not directly impact risk pooling principles.

Supplier risk sharing: While beneficial, it is not the primary principle of risk pooling. By pooling risks, the variability of aggregate demand is reduced, allowing for lower inventory levels while maintaining service levels.

References

Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation.

Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and Managing the Supply Chain.