When evaluating several possible supply chain options, a firm considering the minimal total cost should:
- ensure that the inventory levels are as low as possible to minimize holding costs while still providing adequate customer service.
- account for the combined costs of holding buffer inventory and incurring inventory shortages.
- consider the costs of acquiring, holding, and transporting inventory and of servicing customers.
- place buffer inventory in the lowest cost locations that meet lead time and service level requirements from customers.
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