SCMT 3623 Final quiz questions

For a given product, the order quantity is 600 units, average annual demand is 12,000 units, the average lead time is 1 month, and the safety stock is 400 units. What is the average inventory level for this product?

700 units

If a manager sets a 95% fill rate target, s/he wants to make sure that

95% of all customer demand is filled from on-hand inventory.

If the order quantity is 100 units and the reorder point is 300 units, then which of the following is true?

An order of 100 units will be placed every time the inventory position drops to 300 units.

If we were to graph the total cost function associated with an optimal reorder point (R,Q) model, what shape would the resulting graph (approximately) be?

Bowl-shaped

consider the following data pertaining to the three warehouses operated by a company: Warehouse ______Std. Dev.______ Pairwise correlations _______________________lead time dem._of lead time dem. _____________________________________1_______2________3 Warehouse 1___430___________1_________________ Warehouse 2__ 430___________0.8____1__________ Warehouse 3___430__________-0.4___-0.1_____1 The company considers consolidating any two of its warehouses. Based on the information provided above, in which case will the benefit of warehouse centralization likely be greatest?

Consolidate warehouses 1 and 3

In distribution requirements planning (DRP), ending inventories equal which of the following?

Ending inventory of the prior period + planned receipts - forecast/usage

Distribution requirements planning helps managers to better forecast consumer demand.

False

If a firm reduces the number of warehouses from two to one and finds that total safety stock levels have not decreased as a result of this warehouse centralization, the most likely explanation is that lead time demands between the two warehouses were perfectly negatively correlated.

False

In reality, forecasts are typically not accurate. As such, it is typically most appropriate to use the std. deviation of demand as the primary measure of uncertainty. True/False

False

The greater the average lead time, the greater the optimal newsvendor quantity.

False

The managerial R,Q model is called managerial because it *should* be used by real managers.

False

The mean absolute deviation is a measure of bias in forecasts

False

The video lecture discusses the linkage between forecasting and inventory management using the example of the newsvendor model. The same logic, however, applies to other inventory models. Which of the following statements is most likely correct?

In the context of an optimal reorder point model, we should use the std. deviation of forecast errors when determining optimal safety stocks.

In a newsvendor scenario, the optimal order quantity is calculated as Q*=D+z*sD (where sD is the std. deviation of demand). The optimal in-stock rate is 92%, and the resulting optimal newsvendor quantity is 342. Now the calculation of the newsvendor quantity is modified as follows: Q*=D+z*sD (where sD is the std. deviation of forecast errors), all else equal. Based on this information, how would we expect the optimal newsvendor quantity to change? (select the best answer)

It will likely increase.

Which of the following does the basic EOQ model help inventory managers accomplish?

Minimize the sum of inventory holding and order placement costs

What is the objective of a newsvendor model?

Minimize the sum of the costs of over- and understocking

In a given scenario, the EOQ is 60 and the associated total cost is G(Q)=$4,200. What will be the total cost if an order quantity of 40 (rather than the EOQ) is used?

More than $4,200

In the context of forecasting, the term bias refers to

None of the answers listed are correct. (term)occurs when there are consistent differences between actual outcomes and previously generated forecasts

A negative seasonal index in a particular season

None of the answers listed are correct. indicates how a particular season compares with an average season. When no trend is present, the seasonal index can be found by dividing the average value for a particular season by the average of all the data

______________ is a method of risk pooling.

Order splitting

The newsvendor model likely does NOT apply to which of the following products? (select the best answer)

Paper

In a newsvendor context, the cost of understocking per unit might include

Profit Margins

In a newsvendor context, the cost of overstocking per unit can be computed as follows:

Purchase cost + disposal cost - salvage value

What can be concluded if the optimal newsvendor quantity for a product with an average demand volume of 230 units and a standard deviation of 45 units is equal to 230 units?

The cost of overstocking (per unit) is equal to the cost of understocking (per unit).

For a given newsvendor product, the unit purchase cost is $2 and the unit sales price is $4. Any unsold units are sold at a deeply discounted price of $1. Which of the following statements will be true?

The cost of understocking per unit is $2.

There are ten order cycles per year. No stockouts were observed in six of these cycles. Based on this information, which of the following statements is true?

The in-stock rate is 60%.

For a given product, the average demand per selling period is 220 units with a std. deviation of 110 units. The optimal newsvendor quantity is 440. Which of the following statements will be true?

The optimal newsvendor quantity would be lower if the std. deviation of demand was smaller.

A company uses a managerial reorder point (R,Q) model. Let the order quantity, safety stocks and average lead time demand for a given product be equal to 500 units each. Based on the information given, which of these statements is correct?

The reorder point is equal to 1,000 units.

Which of the following statements about the relationship between demand uncertainty and forecast accuracy is typically true?

The variance of forecast errors is greater than the variance of demand.

Which of the following will result if a firm orders a given product in quantities lower than the EOQ?

Total logistics costs will be higher than in the optimum.

Which of the following is a possible reason for variations in lead times?

Trucks can break down or get stuck in traffic.

A company sells two products which both have the same lead time characteristics (in terms of mean and standard deviation). Demand for product A is 80 units, on average, with a standard deviation of 18. Demand for product B is 75 units, on average, with a standard deviation of 16. Based on this information, we can conclude that the degree of uncertainty (in terms of the standard deviation of lead time demand) must be greater for product A than product B.

True

If lead time demands at two stocking locations are uncorrelated, the pooled standard deviation of lead time demand will be equal to the square root of the sum of the lead time demand variances of locations 1 and 2.

True

One way that forecasting and inventory management activities are or should be linked is that forecasting is concerned with predicting future demand, and inventory management is concerned with ensuring that inventory will be available where and when needed to satisfy future demand. True/False

True

One way that forecasting and inventory management activities are or should be linked is that inventories should not only buffer against demand uncertainty but also against risk introduced by the (inevitable) inaccuracy of forecasts. True/False

True

The lower the degree of lead time demand uncertainty, the less inventory will be needed. True/False

True

When the exponential smoothing method is used to forecast future demand, a higher value of the weighting factor alpha means that greater weights are placed on more recent demand observations (as opposed to more distant past demand observations).

True

In the context of forecasting, the mean error is

a measure of bias in forecasts.

The use of the last period demand forecasting technique implies that the forecast for period t is equal to

actual demand in period t-1.

In the context of forecasting, executive judgment refers to

adjustments of statistical forecasts based on executives' knowledge of future events.

When implementing Holt-Winter's forecasting method, we disaggregate past demand observations into...

base level, trend, and seasonal components

Holt-Winter s forecasting method

calculates forecasts as the sum of base level, trend, and seasonal components.

In a logistics context, forecasting is concerned with predicting future

customer demand.

For a given product, the optimal order quantity is 500 units, average lead time demand is 250 units, and the optimal safety stock is 300 units. Which of the following statements are NOT correct? a. Average cycle stocks will be 500 units. b. The reorder point will be 800 units. c. Total costs could be lowered if the safety stock was reduced to 200 units. d. All of the above statements are incorrect

d. All of the above statements are incorrect

An increase in inventory holding costs per unit, all else equal, will result in which of the following? a. Higher optimal order quantities and, thus, lower average inventories b. Lower order placement costs c. Lower customer demand d. None of the above

d. None of the above

In inventory management, the primary measure of risk is a. The standard deviation of demand b. Average lead time demand c. The standard deviation of lead times d. None of the above

d. None of the above

The reorder point model assumes which of the following? a. Inventories are reviewed continuously b. Demand is random c. Lead times are positive d. Lead times are random e. All of the above f. Only C and D

e. All of the above

The degree of lead time demand uncertainty is calculated based on which of the following? a. Average demand and average lead time only. b. The standard deviation of demand and the standard deviation of lead time only. c. Average demand and the standard deviation of lead time only. d. Average lead time and the standard deviation of demand only. e. None of the above

e. None of the above

Managerial reorder point models are needed because

firms are often unable to optimize inventories due to missing cost information.

In a managerial reorder point model, the greater the given customer service level target, the

greater the reorder point.

All else equal, the advantage of a periodic review model relative to a continuous review model is that

inventory monitoring costs will tend to be lower.

The exponential smoothing forecasting technique

is also called the exponentially weighted moving average forecasting technique.

The unique feature of Holt-Winter's forecasting method is that...

it breaks down past demand observations into three distinct components and then calculates forecasts by re-aggregating these components.

Compared to forecasting methods such as simple exponential smoothing, one benefit of the exponentially weighted moving average with trend and seasonality is that

it can forecast demand for more than one time period into the future.

The fundamental (potential) benefit of risk pooling is that

lead time and/or demand variability can be reduced.

Order splitting (as a risk pooling method) potentially results in lower

lead time uncertainty.

MAPE stands for

mean absolute percentage error.

The objective of the R,Q model is to minimize the sum of

order placement, holding, and stockout costs.

A long-term forecast is a forecast that

refers to more distant future time periods.

In a continuous review model, inventories are

reviewed continuously.

In an optimal reorder point model, safety stocks are determined so as to minimize the sum of

safety stock holding and stockout costs.

When a manager decides to increase the in-stock target from 90% to 99%, s/he implicitly assumes that

stockout quantities are too high and should be lowered.

Qualitative forecasting methods include

the grass roots approach.

The larger the mean absolute deviation,

the less accurate the forecasts.

In a given forecasting exercise, the sum of all seasonal indexes should be equal to

the number of distinct seasons.

In logistics, the portfolio effect refers to

the potential reduction in safety stock requirements achieved through risk pooling.

In a periodic review system

the size of an order will be equal to the difference between the current inventory position and the order-up-to level (S).

When actual demand is greater than the forecast, we conclude that

there is a positive forecast error.

When forecasts are determined based on past demand observations, we speak of

time series forecasting.