Question

Suppose a supply chain has all inventory aggregated in a single distribution center (DC) and the correlation of demands in different areas is 0.6 now. As the correlation increases to 1, the total safety inventory ___. As the correlation of demands decreases to 0, the total safety inventory ___.

Answer 1

decreased, increases.

Step-by-step explanation:

It is to be noted that the safety inventory on aggregation amplifies with the correlative coefficient of variation in the analyses of demand, but in this situation since the correlation is being provided from 0.1 to 1, therefore the inventory of safety reduces with the increase in the correlation as they are indirectly proportionally related and vice versa it raises when the correlation decreases to be 0.