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...When looking at demand for your own products, it is wise not to make qualitative assumptions regarding independence without checking the numbers carefully. A medical device company was recently surprised to learn that demands across its different product lines were highly correlated; they had incorrectly thought that sales across product lines would be independent! Some reasons for this could be sales-force incentives or quarterly budget targets; whatever the cause, correlation of demands reduces the benefit of risk pooling.

The results of the "quick estimate" formula for values of N from 1 to 25 are plotted in the figure below. Note that for high values of N there are large reductions in safety stock:

There are three short exercises below. Use the menu below to try each one:

Suppose your company's sales for the last 12 months were as follows (some rows may be blank):