The reduction in variability allows a decrease in safety stock and therefore reduces average inventory.
For example, in the centralized distribution system, the warehouse serves all customers, which leads to a reduction in variability measured by either the standard deviation or the coefficient of variation.
The three critical points to risk pooling are: An Intergovernmental risk pool (IRP) operates under the same general principle except that it is made up of public entities, such as government agencies, school districts, county governments and municipalities.
Although they are not considered insurance, pools extend nearly identical coverage through similar underwriting and claim activities, as well as provide other risk management services.
Pools tend to protect their members from cyclic insurance rates, offer loss prevention services, offer savings (as they are non-profit organizations and do not lose funds through broker fees), and have focus and expertise in governmental entities that are often not found in insurers.