Increasing cycle service level typically leads to what in inventory terms?

Increasing cycle service level typically leads to what in inventory terms?

• A. Higher average inventory and potentially higher carrying costs
• B. Lower average inventory and lower carrying costs
• C. Higher average inventory and higher carrying costs
• D. No change in inventory costs

Answer: (C)

Raising the cycle service level means you aim for a higher probability of meeting demand within a replenishment cycle. To achieve this, you typically hold more safety stock to cover demand and lead-time variability. That additional safety stock raises the average inventory and the carrying costs (storage, insurance, obsolescence, handling). So the best answer is that both average inventory and carrying costs increase. The other options imply reductions or no change, which don’t align with the need for more buffer stock as service level rises.

Raising the cycle service level means you aim for a higher probability of meeting demand within a replenishment cycle. To achieve this, you typically hold more safety stock to cover demand and lead-time variability. That additional safety stock raises the average inventory and the carrying costs (storage, insurance, obsolescence, handling). So the best answer is that both average inventory and carrying costs increase. The other options imply reductions or no change, which don’t align with the need for more buffer stock as service level rises.