Which term describes inventory carried to cushion against forecast error?

Which term describes inventory carried to cushion against forecast error?

• A. Fluctuation inventory
• B. Hedge inventory
• C. Idle capacity
• D. Flow processing

Answer: (A)

The idea being tested is buffering against uncertainty in demand due to forecast errors. When forecasts aren’t perfect, actual demand can swing away from what was planned. Carrying extra inventory specifically to absorb those swings keeps service levels intact and avoids sudden stockouts or expedited orders. This buffer is described as fluctuation inventory. It’s different from idle capacity, which is unused resources rather than inventory. It’s also different from flow processing, which refers to a production approach, and from hedge inventory, which is held to protect against price or currency risks rather than to cushion forecast errors.

The idea being tested is buffering against uncertainty in demand due to forecast errors. When forecasts aren’t perfect, actual demand can swing away from what was planned. Carrying extra inventory specifically to absorb those swings keeps service levels intact and avoids sudden stockouts or expedited orders. This buffer is described as fluctuation inventory.

It’s different from idle capacity, which is unused resources rather than inventory. It’s also different from flow processing, which refers to a production approach, and from hedge inventory, which is held to protect against price or currency risks rather than to cushion forecast errors.