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How does risk pooling affect inventory levels when a company uses fewer and centralized warehouses? Please explain.

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User Salamit
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1 Answer

2 votes

Answer:

In simple words, Inventory risk pooling is the concept that the variability in demand for raw materials is reduced by aggregating demand across multiple products. When properly employed, a business can use risk pooling to maintain lower inventory levels while still avoiding stock out conditions. Although for preventing stock out situation a company need warehouses where they can keep supply sufficient for emergency conditions.

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User Emmitt
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