SCM 403

For inventory systems with constant demand and a fixed lead time, which one is true? (a) the reorder point = lead time demand (b) the reorder point > lead time demand (c) the reorder point < lead time demand (d) the reorder point is unrelated to lead time demand.

(a) the reorder point = lead time demand

Which of the following purposes does a warehouse serve? (a) storage (b) break-bulk (c) consolidation (d) all of the above

(d) all of the above

The weekly demand for notebook computers at the local best buy stores follows a normal distribution with mean 500 and standard deviation 100. What is the chance of a stock out during a month when 720 units were stocked?

1.4% approx.

Using the probability approach to determine an inventory safety stock and wanting to be 95 percent sure of covering inventory demand (i.e. SL) which of the following is the number of standard deviations necessary to have the 95 percent service probability assured?

1.645.

If it takes a supplier four days to deliver an order once it has been placed and the Standard Deviation of Daily Demand is 10 what is the standard deviation of usage during lead time?

20.

The difference(s) between the News vendor model and the Order-up-to model is/are (a) in the news vendor model the inventory gets obsolete after one period (b) the number of replenishments in the order up to model are unlimited (c) only a (d) only b (e) both a and b

Both A and B

What are the two things that will improve cycle service level?

Decrease variability and increase Reorder Point

Which of the following is not an assumption of the basic fixed-order quantity inventory model. (a) ordering or setup costs are constant (b) inventory holding cost is based on average inventory (c) diminishing returns to scale of holding inventory (d) lead time is constant (e) demand for the product is uniform throughout the period

Diminishing returns to scale holding inventory (C)

Which of the following is not one of the factors influencing network design decisions? (a) Free Trade Zones (b) Trading blocs (c) proximity of customers (d) ERP software choice (e) political risk and environmental regulations

ERP software choice.

Which one of the following quantities cannot be altered by the News vendor order quantity? (a) expected lost sales (b) expected profit (c) expected demand (d) expected fill rate (e) expected left over inventory

Expected Demand (C)

What is the definition is of expected left over inventory? Can it be negative?

Expected leftover inventory is the average amount that demand (a random variable) is less than the order quantity (a fixed threshold). No, expected left over inventory can only be zero or positive, it cannot be negative.

What is the definition of expected lost sales? What does it measure?

Expected lost sales is the expected number of units by which demand (a random variable) exceeds the order quantity (a fixed threshold). It is a performance measure of how much sale we might lose.

True / False. A retail store that carries twice the inventory as its competitor will provide twice the customer service level.

False

True / False. EOQ inventory models are basically concerned with the timing of orders?

False

True / False. For a given fill rate, the expected inventory is higher in a system with lower variability compared to a system with higher variability when everything else is the same.

False

True / False. Inventory position can never be negative

False

True / False. The news vendor model, with minor modifications, can be used to manage the inventory of repairable service parts

False

True / False. The objective of inventory management is only to minimize the cost of holding inventory

False

True / False. For ordering the single replenishment of a fashion product over a single time period a profit-maximizing inventory manager should always order more than the average of the forecasted demand distribution.

False.

True / False. The design of after-sales service supply chain is typically based on how variable the demand is?

False.

True / False. The expected back orders in an order up-to model with lead-time L and review period T can simply be obtained by finding the expected loss sales of a newsvendor model whose demand is identical to the L+T+1 period demand of the order up-to model and whose order quantity is the base stock level s.

False.

True / False. The on-order inventory in a base stock policy system is found by multiplying the lead-time with average of the demand over L+T periods.

False.

True / False. We can use the newsvendor model to manage the inventory of items with fixed and known demand.

False.

True /False. Centralized warehouse system needs to maintain more safety stock compared to decentralized system.

False.

True /False. Demand in after-sales service supply chain is predictable.

False.

True /False. Faster mode of transportation is preferred for products having small value to weight ratio.

False.

True /False. The pipeline inventory gets reduced due to risk pooling.

False.

True /False. The reorder point in EOQ model depends on the desired service level.

False.

True/ False. As the number of facilities in a supply chain increases the total transportation cost in the supply chain always goes down.

False.

True/ False. The objective function of the gravity location or the center of gravity (COG) model of facility location is the sum of both the total inventory holding and the total transportation costs in the supply chain.

False.

True/ False. Gravity Location /COG method is a multiple facility location model?

False. COG method is a single facility location model.

True /False. Freight consolidation helps to achieve cost savings and improved customer service at the same time.

False. Freight consolidation helps in cost reduction at the expense of customer service.

True /False. In U-Flow configuration of warehouse layout shipping and receiving are on opposite sides.

False. In U-flow configuration shipping and warehousing are on the same side.

True/ False. In a push based supply chain manufacturers react to the real demand from customers not forecasts.

False. In a pull based supply chain manufacturers react to the real demand from customers not forecasts.

True / False. expected sales can exceed expected demand.

False. Recall expected sales = Mean - expected lost sales. since expected lost sales can never be negative, expected sales can never exceed expected demand.

True / False. Expected lost sales does not depend on the variability of demand.

False. Recall the expected lost sales = SD * L(z)

True / False. The fill rate performance measure in an inventory system is always lower than the service level or in-stock probability performance measure.

False. Rule of Thumb: the resulting fill rate for a product will be higher than the cycle service level, except at 100%, the fill rate becomes equal the service level.

True / False. The cycle service level measures the quantity of shortage.

False. The CSL measures whether there will be a shortage or not. It does not measure the amount of shortage.

True /False. In service part optimization the objective function is to minimize inventory. This is an example of unconstrained optimization.

False. The constraint is spare parts availability Target availability.

True /False. In a demand allocation model between multiple plant locations and multiple markets the objective function is to minimize the total transportation cost.

False. To minimize total production and total transportation cost.

True /False. Flow-through configuration of warehouse layout is most beneficial when only a few SKUs are of high volume and many slow moving SKUs.

False. U-flow configuration is most beneficial in such situations.

True / False. Inventory position can be lower than inventory level. Explain why?

False. inventory position can never be lower than the inventory level, because on order- can never be negative

True / False. When we combine normal distributions, the variance of the combined distribution is square root of sum of variance of individual distributions.

False. the variance of the combined distribution is the sum of variance of individual distributions.

State the principle of warehouse layout design.

Fast moving goods shall be stored at the most convenient location.

What is the difference between cross docking and traditional warehouse system?

In Cross docking strategy, warehouse and distribution centers serve as transfer points and no inventory is held. In traditional warehouse, distribution centers and warehouses hold stocks and provide their downstream customers with inventory as needed.

What are the different ways of shipment consolidation?

Inventory consolidation Vehicle consolidation Warehouse consolidation Temporal consolidation.

What are the definitions of inventory level and inventory position?

Inventory level: IL = On Hand - Back Order Inventory Position : IP = On Hand + On Order - Back Order

Define inventory turnover ratio.

Inventory turnover ratio is the ratio of annual unit flow rate through the warehouse to average inventory level.

In a base stock policy the key factors that determine the amount of inventory needed are.

Lead Time service level (or fill rate) and demand uncertainty.

If a decrease in unit price causes the average demand rate to increase which one of these would not increase? (i) The EOQ (ii) lead time (iii) annual holding cost (iv) reorder point (v) safety stock.

Lead time

Yes/ No. We use normal distribution to describe a random variable that takes only two values 0 or 1. Is it ok?

No. We should use binomial distribution instead.

What is order-up to level?

Order up to level is the maximum inventory position we are willing to have

Highly specialized low cost per mile product requiring no packaging and very high initial investment costs are characteristics of which transportation mode?

Pipeline.

Which probability distribution that can reliably model product failure?

Poisson distribution

What are the three elements of customer service?

Price, quality and service

Choice of transportation option depends on the trade-off between (total cost of transportation + inventory + facility) and ..............................

Responsiveness.

What is revenue management?

Revenue management is the task of allocating the right type of capacity to the right type pf customer at the right time and cost to maximize revenue.

Which types of costs are accounted for in EOQ Model?

The EOQ model accounts for three types of costs: (1) the cost of the units themselves (2) the cost of holding units in inventory ; and (3) the fixed order ( or manufacturing set-up) cost.

Of the three types of costs that a EOQ model deals with, which one accounts for the risk of shrinkage (i.e. the units may be lost or stolen) and obsolescence (i.e the units become useless while sitting in inventory)?

The cost of holding units in inventory (i.e. holding cost) accounts for the risk of obsolescence and shrinkage.

Define Expected Fill Rate and Service Level

The fill rate is the fraction or percentage of customer demand that is met through immediate stock availability. This is the probability that a customer is able to purchase a unit (I.E. does not experience a stock out) The cycle service level (or just service level or in-stock probability) is the probability of not hitting a stock out. This is the probability that the firm has stock available for every customer. We can think service level as the probability that all demand is satisfied.

How do we generally represent holding cost?

The holding cost is generally represented as a percentage of the cost of the goods.

What is the purpose of calculating reorder point?

The reorder point formula allows us to determine the safety stock (SS) needed to achieve a certain cycle service level. In general, the longer the lead times are, and the greater the variability of demand and lead times, the more SS we will need.

Firms keep supplies of inventory for which of the following reasons? (i) to maintain dependence of operations (ii) to provide a feeling of security for the workforce (c) to meet variation of product demand (d) to hedge against wedge increase.

To meet variation of product demand.

Intermodal transportation means the combination of which two primary modes of transportation?

Truck and Rail.

True / False when demand is stable, increasing the lot size ordered will increase the amount of cycle inventory

True

True / False. Annual ordering cost is inversely related to the order size

True

True / False. Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost

True

True / False. EOQ Models are often quiet robust.

True

True / False. It is possible that for some product the fill rate could be 99% but the CSL could be 0%

True

True / False. The average inventory level and the number of orders per year are inversely related: as one increases, the other decreases.

True

True / False. The order quantity in each period is exactly equals the demand in the previous period in the order up to inventory model.

True

True / False. The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

True

True / False. To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the timing and size of orders.

True

True / False. In forecasting the SKU-level forecasts are often less accurate than the aggregate-level forecasts.

True.

True / False. In newsvendor model the profit maximizing quantity is given by the instock probability equal to critical ratio?

True.

True / False. Inventory is required if a firm is to realize economies of scale in purchasing transportation and/or manufacturing.

True.

True / False. More inventory is needed as demand uncertainty increases for fixed fill rate.

True.

True / False. Opportunity cost of not ordering from a least cost supplier is not a part of ordering cost.

True.

True / False. Reducing lead-time reduces the expected on-hand inventory especially when the required fill rate is high.

True.

True / False. Reducing the lead time reduces expected inventory especially as the target fill rate increases.

True.

True / False. Safety stock can be defined as the amount of inventory carried in addition to the expected (or average) demand.

True.

True / False. The Fixed-Order Quantity inventory model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to a potential stock out?

True.

True /False. Direct shipping network with milk run has lower transportation cost than pure direct shipping model.

True.

True /False. Fill rate is a performance matric of manufacturing supply chain but cannot be used for after-sales service supply chain.

True.

True /False. In a base stock policy the pipeline stock (PS) does not depend upon the review period T.

True.

True /False. Postponement is a form of risk pooling over products.

True.

True /False. Risk pooling allows to lower inventory and increase service level simultaneously.

True.

True /False. Risk pooling is effective when total demand uncertainty is lower than the uncertainty for individual products.

True.

True /False. The safety stock in (Q. r) policy depends on desired service level and demand variability over (T+L) period.

True.

True/ False. Benefits of risk pooling is smaller when market demands are positively correlated?

True.

True/ False. The higher the coefficient of variation the greater the benefit from risk pooling?

True.

True/False. The layout (or design) of a warehouse often plays a key role in determining labor productivity within that warehouse.

True.

True / False. In news vendor model, if the underage cost is greater than overage cost, profit maximizing quantity is more than expected demand.

True. intuitively if underage cost is greater than overage cost, this means it is more expensive to lose a sale than to have leftover inventory. Ten a firm will stock more than expected demand. On the other hand, for some products, overage cost is larger than the underage cost; it is actually best to order less than expected demand.

True / False. Expected lost sales and expected left over inventory can both be positive?

True. while in any particular season there is either leftover inventory or lost sales, but not both, but we are interested in the expectation of those measures over all possible outcomes. therefore, each expectation can be positive.

True / False. In inventory models, if you have high holding costs the model would tend to favor high inventory levels.

false

True / False. Inventory turnover is not a measure of performance measure of customer service

false

True / False. It is easier to predict demand of each variety of products, when there is large variety of products on offer

false

When you delay some customization until it is closer to the end is known at what?

postponement