A firm is deciding to increase the number of warehouses from 4 to 5. If the safety stock level of the product is currently at 500 units, which of the following quantities is an estimate of the revised safety stock levels as a result of increasing the number of warehouses?
When increasing the number of warehouses, the safety stock levels are adjusted using the square root law of inventory. This law states that the safety stock is proportional to the square root of the number of locations. The revised safety stock level can be estimated using the formula: (New number of warehouses / Current number of warehouses)^0.5 * Current safety stock. In this case, (5 / 4)^0.5 * 500 ≈ 560. Therefore, the revised safety stock level is approximately 560 units.
=sqrt(5)/sqrt(4)*500= 560 rounded