Which of the following best describes the effect of demand variability on customer service in distribution centers?

Demand variability refers to the fluctuations in customer demand, which can impact various operational aspects of distribution centers. When demand is unpredictable or varies widely, it can lead to stockouts—when items are not available to meet customer demand—or overstock—when too much inventory is held, leading to excess costs and inefficiencies.

In a distribution center, if demand is higher than expected, stockouts can occur, resulting in missed sales opportunities and dissatisfied customers due to unfulfilled orders. Conversely, if demand falls below expectations, overstock can happen as the center tries to maintain inventory levels, resulting in increased carrying costs and potential waste, particularly for perishable goods. Thus, understanding demand variability is critical for maintaining optimal inventory levels and ensuring that customer service does not suffer due to these stock imbalances.

This understanding highlights the need for effective inventory management and demand forecasting techniques that can adapt to variability instead of relying solely on estimates that may not capture sudden changes in customer preferences or market conditions.