Question 19
A SKU (Stock Keeping Unit) has a "Long Tail" sales distribution. In an ABC analysis, this SKU would likely fall into Category C. What is the primary risk of managing this data using simple "Average Demand"?
It will slightly underestimate storage costs, but this effect is negligible for long‐tail SKUs.
It will mix many zero‐demand periods with rare spikes into a single value, leading to excess stock in most periods and still not guaranteeing enough stock when a spike happens.
It will mainly affect the ABC classification, but not the replenishment policy.
It will always underestimate demand for long‐tail SKUs, causing frequent stockouts but never over‐stocking.