If safety
stocks are planned for each market on a separate basis, I1 units of safety stock would
be required for the total network while only 7 units of safety stock would be required
to service all markets from a single warehouse. An increase in total system safety
stock of 4 units is required as a result of using three warehouses. This simplified example illustrates the general safety stock impact of adding warehouses
to a logistical network. The important point to understand is that increased safety
stock results from an inability to aggregate uncertainty across market areas. As a consequence,
unique safety stocks are required to accommodate local demand variation.