The decision of how much safety stock to hold depends on five factors:The variability of demandThe variability of lead timeThe average length of lead timeThe average demandThe desired service levelInventory in the Supply ChainBullwhip Effect ---An extreme change in the supply position upstream in a supply chain generated bya small change in demand downstream in the supply chain. This creates excessive inventory throughout the supply chain.CAUSES:Upstream firms tend to over-react to subtle demand and mix changes.Downstream firms tend to over-react to subtle shipment and delivery disruptions.TO MINIMIZE: Reduce communication and delivery time delays.Inventory Positioning – Deciding where in the supply chain to hold inventory.The cost and value of inventory increases as materials move downstream in the supply chain.The flexibility of inventory decreases as materials move downstream in the supply chain.Geographic Inventory Pooling –Holding safety stock in a single location instead of multiple locations.Postponement –Holding partially assembled components that can be configured in various waysManaging Inventory: Accuracy and Cycle CountingInventory Accuracy: A measure of how closely the actual, physical inventory is reflected in the Inventory Management Systems utilized by the firm. Measured as a Percent. •Sometimes material movement or removal is not recorded•Sometimes materials are misplaced•Materials can be stored in multiple locations•Materials that are recorded as removed could be returned and replaced without recordCycle Counting: The physical technique of reviewing the actual, physical inventory to update numbers in the Inventory Management System. Situations that often trigger a Cycle Count:•Counting when the Inventory Management System indicates a low or 0 inventory.•Counting when the Inventory Management System indicates a positive inventory, but a backorder is experienced (when there is an inventory discrepancy).•Counting after a pre-specified level of activity.