Ch. 9 - Advanced Inventory Management

Larger, less frequent replenishments should be scheduled for products with greater annual usage. True/False

False

An increase in customer demand uncertainty, all else equal, will result in greater lead time demand uncertainty. True/False

True

For a given product, average demand is 450 and the cost of overstocking is equal to the cost of understocking ($6). What will be the optimal newsvendor quantity? a. 450 b. 462 c. 2,700 d. Cannot be determined from the information provided

a. 450

What is the difference between an optimal and a managerial reorder point model? a. In a managerial model, managers set service level targets b. In an optimal model, managers manually place replenishment orders c. In a managerial model, managers make optimal decisions d. In an optimal model, safety stocks are set to the optimal value of zero

a. In a managerial model, managers set service level targets

Which of the following best describes why 3-D printing can be a form of risk pooling? a. It allows firms to print inventory on demand using the same raw materials for multiple products b. 3-D printing lets firms produce three-dimensional parts c. The costs of 3-D printers have decreased while their capabilities have increased d. 3-D printers can print parts for airplanes that can move inventory more quickly

a. It allows firms to print inventory on demand using the same raw materials for multiple products

Risk pooling is a tool to manage and reduce which of the following? a. Lead time demand risk b. Obsolescence risk c. Financial risk d. Criminal risk e. All of the above f. Only B and C

a. Lead time demand risk

In the context of inventory classification, the term annual usage refers to which of the following? a. The product of annual sales (in units) and unit costs b. The amount of energy needed to store a particular item in inventory for one year c. The percentage of a product's inventory that is sold within a year d. The share of a firm's total SKU (stock keeping unit) count that is sold at least once a year

a. The product of annual sales (in units) and unit costs

If, for a given product, average annual demand is 1,200 units and the average lead time is 4 months, then average lead time demand will be ________? a. 300 units b. 400 units c. 4,800 units d. None of the above

b. 400 units

Why is the reorder point model also called the "R,Q" model? a. It suggests that Random Quantities should be ordered b. It is defined by a reorder point R and an order quantity Q c. It is a Random extension of the EOQ model d. An order quantity Q is ordered every time Random demand is observed

b. It is defined by a reorder point R and an order quantity Q

The key objective of Walmart's Must-Arrive-By-Date policy is to do which of the following? a. Reduce average lead times b. Reduce lead time variability c. Reduce average demand d. Reduce demand variability

b. Reduce lead time variability

When stockout costs are unknown, which of the following is true? a. It is best to implement an optimal reorder point policy b. The best option is to determine the order quantity using the basic EOQ c. The best possible reorder point value is equal to the order quantity d. Managers must use their best guess to calculate stockout costs

b. The best option is to determine the order quantity using the basic EOQ

Lead time uncertainty refers to which of the following? a. The uncertainty surrounding new product development projects b. The variability in lead times across multiple order cycles c. The average amount of time that elapses between order placement and order receipt d. The number of different transportation options (with different lead times) a firm considers

b. The variability in lead times across multiple order cycles

When should the newsvendor model be used? a. Stockout cost information is not available b. There is a limited selling season c. Lead times are negligible d. Demand is constant e. All of the above

b. There is a limited selling season

What is the reorder point the sum of? a. Safety stock and cycle stock b. Cycle stock and average lead time demand c. Average lead time demand and safety stock d. None of the above

c. Average lead time demand and safety stock

If average lead time demand for a given product is 200 units and the reorder point is 400 units, then what is the in-stock probability? a. Less than 50% b. Equal to 50% c. Greater than 50% d. Cannot be determined from the information provided

c. Greater than 50%

Warehouse centralization will be most beneficial when the correlation of lead time demands what between stocking locations? a. Positive b. Zero c. Negative d. Cannot be determined from the information provided

c. Negative

Risk pooling potentially enables firms to lower which of the following? a. Customer demand b. Average lead times c. Safety stocks d. Stockout costs per unit e. All of the above f. Only B and D

c. Safety stocks

Which of the following statements about "A", "B", and "C" items are correct? I. "A" items should be reviewed continuously II. "B" items should have low levels of safety stock III. "C" items should be replenished in larger quantities a. Only statement I is correct b. Statements I and II are correct c. Statements I and III are correct d. All statements are correct

c. Statements I and III are correct

Customer demand uncertainty refers to which of the following? a. The difficulty of predicting which particular customers will purchase a product b. Customers' struggles of choosing between different products c. The challenge associated with anticipating how much of a product customers will buy in a specific time period d. None of the above

c. The challenge associated with anticipating how much of a product customers will buy in a specific time period

If average demand is 25 units, and the newsvendor quantity is 22 units, then which of the following is true? a. The standard deviation of demand is zero b. The cost of understocking is zero c. The cost of overstocking is greater than the cost of understocking d. The standard deviation of lead times must be greater than the average lead time

c. The cost of overstocking is greater than the cost of understocking

What would the Pareto (or 80/20) rule applied to inventory suggest? a. 80% of a firm's stock keeping units (SKU) account for 80% of the cost of goods sold (COGS) b. 80% of a firm's SKUs have below-average unit costs (at least 20% below average) c. 20% of COGS are generated from 20% of a firm's SKUs d. 20% of a firm's SKUs account for 80% of COGS

d. 20% of a firm's SKUs account for 80% of COGS

In the context of inventory management, the term risk pooling refers to which of the following? a. Creating pools of inventory in different stocking locations b. Risking greater inventory by pooling management staff c. Pooling inventory risk managers d. None of the above

d. None of the above

Which of the following information sets is sufficient to calculate the optimal newsvendor quantity? a. Cost of overstocking, cost of understocking and average demand b. Average lead time, std. deviation of lead time, cost of overstocking and cost of understocking c. Average demand, average lead time, and optimal in-stock probability d. None of the above

d. None of the above

In which of the following instances might the newsvendor model be applicable? I. Publishing II. Fresh foods III. Canned goods IV. Fine restaurants a. The model is applicable on all of these examples b. The model is most applicable in examples I and II only c. The model is most applicable in examples I and IV only d. The model is most applicable in examples I, II and IV only

d. The model is most applicable in examples I, II and IV only

In the context of inventory management, the purpose of an ABC analysis is to ________. a. alphabetically list of stock keeping units b. determine which products a retailer should carry in its stores c. categorize customers by purchase frequency d. identify the classes of products that represent high, medium, and low annual usage, respectively

d. identify the classes of products that represent high, medium, and low annual usage, respectively