Exam 2 Practice Quiz

Lubricants for production equipment which are not parts of the final products are called:

Maintenance, repair and operating supplies

Which of the following would be considered a dependent demand item?

Microchips used in automobiles

Random variations

Remainder of variability after other components; also called noise or irregular

Seasonal variations:

Repeated cycle around a known and fixed period such as the time of the year or the day of the week.; Regular and repeated variations that occur in sales data within a period of 12 months or less.

Regression analysis is commonly used in the cause-and-effect forecasting model.

True

Retail stores could benefit from item-level RFID tagging by recommending products to consumers to complement products in their shopping cart.

True

The goal of a good forecasting technique is to minimize the deviation between actual demand and the forecast.

True

The calculated forecast for May is 47.2, using the actual demand shown in the table below, and a 3-month weighted moving average with weights 0.2, 0.3, 0.5 (the heaviest weight applied to the most recent period). Nov. Dec. Jan. Feb. Mar. Apr. 39. 36. 40 49 48 46

True; (0.2*49)+(0.3*48)+(0.5*46)=47.2

Simple Moving Average Forecast

Uses historical data to generate a forecast. Works well when demand is stable over time; Ft+1 = 𝐴𝑡 + 𝐴𝑡−1 + ⋯ + 𝐴𝑡−𝑛+1n With fewer periods, the forecast will be more responsive to recent changes. With more periods, the forecast will be less responsive but more stable.

jury of executive opinion

a forecasting technique that uses the opinion of a small group of high-level managers to form a group estimate of demand; Long-range planning• New product introductions

cause and effect forecasting

assumes that one or more factors (independent variables) predict future demand

Weighted Moving Average Forecast

based on an n-period weighted moving average; Higher weights are assigned to more relevant observations. It does not respond quickly to trend changes Ft+1 = 𝑤𝑡𝐴𝑡 + 𝑤𝑡−1𝐴𝑡−1 + ⋯ + 𝑤𝑡−𝑛+1𝐴𝑡−𝑛+1 Higher weights are assigned to more relevant observations.

Delphi Method

form of qualitative forecasting that involves consensus of a group of experts using a multi-stage process to converge on a forecast; High-risk technology• Expensive projects• New product introductions

According to the lecture note, a firm typically carries ______ inventory items.

hundreds or thousands

Running Sum of Forecast Errors (RSFE)

indicates bias in the forecasts or the tendency of a forecast to be consistently higher or lower than actual demand; RSFE > 0: the forecasts are generally lower than actual demand which can lead to stockouts. RSFE < 0 indicates: the forecasts are generally higher than actual demand resulting in excess inventory carrying costs.

All _______________ methods become less accurate as the forecast's time horizon increases.

quantitative

With ___ policy, at each review time, a sufficient quantity is ordered to bring the inventory up to a pre-determined maximum inventory level S.

(S,R) Periodic Review System s = reorder point; S = maximum inventory level; Q = order quantity;R = review period; OH = current inventory on-hand; n=1,2,3,... (S,R) policy: Every R time period, order (S - OH). (s, S, R) policy: Ever R time period• If OH ≤ s, then order (S - OH).• If OH > s, then do not order.

____ policy orders the same quantity Q when physical inventory (or current inventory on-hand) reaches the reorder point s.

(s,Q) Continuous Review System: s = reorder point; S = maximum inventory level; Q = order quantity; OH = current inventory on-hand s, Q) policy: Order Q when OH = s (s, S) policy: Order (S - OH) when OH ≤ s

What is considered an acceptable range for a tracking signal?

+/-3

Components of Time Series

-Trend -Cyclical -Seasonal -Random variations

If at the end of the year, the cost of revenue = $3,500, total revenue = $10,000 and inventory value = $3,000, the inventory turnover ratio would be: Group of answer choices

1.17; 3500/3000 = 1.17

Based on the information in the data set below, what is the mean squared error (accurate to 1 decimal)? Month Actual Forecast 1 12 11 2 13 10 3 10 8 4 11 6 5 9 8

1.6; Period 1 Error = 12 - 11 = 1; e2 = 1 x 1 = 1; Period 2 Error = 13 - 14 = -1; e2 = -1 x -1 = 1; Period 3 Error = 10 - 8 = 2; e2 = 2 x 2 = 4; Period 4 Error = 11 - 12 = -1; e2 = -1 x -1 = 1; Period 5 Error = 10 - 11 = -1; e2 = -1 x -1 = 1 MSE = (1 + 1 + 4 + 1 + 1)/5 = 1.6 I have absolutely no idea how that is that

Using the data set below, what would be the forecast for period 6 using the exponential smoothing method? Assume the forecast for period 5 is 14,000. Use a smoothing constant of α = 0.4. (Choose the closest answer.) Period Actual Demand 1 11,900 2 12,500 3 14,325 4 15,750 5 10,500 6 15,500

12600; no idea how

Use the information below to calculate the number of orders per year when using the EOQ: Annual demand for an item is 35,000 units The cost to place an order is $150 The per unit cost of the item is $40.00 The annual holding rate is 35% Round to the nearest whole number.

40 Calculate EOQ first; EOQ Formula is on cheat sheet EOQ = sqrt(2×35000×150)/(0.35×40) = 866.03 and Number of orders placed per year = 35000/866.03 = 40.41

The cost of a product is $10, and the holding rate is 20%; the cost of processing an order is $50 and the annual demand is 4000. What is the economic order quantity (EOQ)? Round to the nearest whole number.

447; EOQ= SQRT[(2*Annual Demand*Cost of placing order)/(Holding rate%*Cost per unit)] EOQ = sqrt (2×4000×50)/(0.2×10) = 447.2

Regression finds correlations between

A dependent variable (y) One or more explanatory/independent variables (x1, x2, ...)

Exponential Smoothing Forecast

A type of weighted moving average forecasting technique in which past observations are geometrically discounted according to their age; For older observations, weights decrease exponentially. Suitable for data with little trend or seasonal patterns Ft+1 = At + (1 - ) Ft As α approaches 1, the forecast becomes more responsive to recent changes. As α approaches 0, the forecast becomes more stable and less responsive.

Periodic Review System

An inventory system that is used to manage independent demand inventory where the inventory level for an item is checked at regular intervals and restocked to some predetermined level; Inventory levels reviewed at regular intervals.• E.g., weekly, monthly• Higher safety stock to buffer the added variation due to longer review period.

Continuous Review System

An inventory system used to manage independent demand inventory. The inventory level for an item is constantly monitored, and when the reorder point is reached, an order is released; Inventory levels updated in real time.• Expensive to administer• Lower safety stock.

What inventory factor may be omitted from the basic EOQ derivation because it is a constant?

Annual purchase cost of goods

In the Delphi method of forecasting, how is consensus among experts reached?

By independently surveying experts in multiple rounds.

What is the consequence of overestimating demand in business forecasting?

Dealing with unsold products and excess inventory.

The primary purpose of the basic economic order quantity (EOQ) model is to:

Derive the optimum order quantity to minimize total inventory costs

If you felt that recent demand trends were more significant, and thus should be emphasized more in formulating a forecast, then in forecasting demand for the upcoming demand period, you would probably favor using a simple moving average over the conventional weighted moving average.

False

Radio Frequency Identification (RFID) is beginning to replace bar code inventory tracking; however a weakness is that it requires a direct line of sight for RFID tags to be read.

False

The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods.

False (Raw Materials, Work In Progress wip, Finished Goods, MRO Supplies)

Pareto Analysis means that 20 percent of the items get about 80 percent of the safety stock.

False 80% of the effects come from 20% of the causes

Quantitative forecasting methods are based on opinions and intuition, whereas qualitative forecasting methods use mathematical models and relevant historical data to generate forecasts.

False, Qualitative

Given the following information, the forecast for period two using exponential smoothing and α = 0.3 is 60.5. Period Demand Forecast 1 66 59 2 70 ___

False; F2 = 59 + 0.3(66 - 59) = 61.1

consumer survey

Forecasts are developed from the results surveying customers on future purchasing needs, new product ideas and opinions about existing or new products; Challenges include• sample representativeness• response rate

Which of the following describes a global RFID challenge?

Globally, the RFID industry does not have its own UHF spectrum allocation

What challenge is associated with using the Consumer Survey technique in forecasting?

Identifying a sample representative of the larger population.

Which one of the following statements regarding the economic order quantity (EOQ) is true?

If an order quantity is smaller than the EOQ, then the annual holding cost is slightly lower and the annual ordering cost is slightly higher.

Which of the following is one of the key objectives of the Collaborative planning, forecasting, and replenishment concept?

Information sharing between suppliers and retailers that aids in planning and satisfying customer demands

Which qualitative forecasting technique involves surveying a group of senior executives knowledgeable about the market and business environment?

Jury of executive opinion.

Trend variations

Persistent movements in one direction. Common trend lines are linear, S-curve, or exponential.

Which of the following is NOT a component of time series? Seasonal variations Cyclical variations Time variations Trend variations

Time Variations

Why is it essential to have an accurate forecast in business operations?

To increase potential revenues.

CPFR is more likely to succeed if companies educate their employees on the benefits of the process changes and the disadvantages of maintaining the status quo.

True

Dependent demand may have a pattern of abrupt and dramatic change because of its dependency on the demand of the final product.

True

In manufacturing, setup costs are used in place of order costs to describe the costs associated with preparing machines and equipment to produce a batch of product.

True

One of the assumptions of the economic order quantity model (EOQ) is that purchase price must remain constant.

True

Retailers are reluctant to share the type of proprietary information required by Collaborative planning, forecasting, and replenishment (CPFR) concept.

True

The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue.

True

sales force composite

qualitative sales forecasting method based on the combined sales estimates of the firm's salespeople; Reliable• Biases due to conflict of interest

time series forecasting

quantitative based on the assumption that the future is an extension of the past. Historical data is used to predict future demand; Assumes that the future is an extension of the past.• Historical data is used to predict future demand

Naïve Forecast

the estimate of the next period is equal to the demand in the past period Ft+1 = AtWhere Ft+1 = forecast for period t+1At = actual demand for period t

MAD of 0 indicates

the forecast exactly predicted demand.

A positive error implies that a forecast was:

too low, not have enough product to satisfy the customer demand, and we are likely to lose customers to our competitors.

A time series is a sequence of observations ordered in time.

true

Inaccurate forecasts would lead to imbalances in supply and demand.

true

LCD screens purchased by Apple are an example of dependent demand.

true (Dependent - supplies that are needed to make the end product?)

Cyclical variations:

wavelike movements that are longer than a year; The rises and falls are not of a fixedfrequency. Often influenced by macroeconomicand political factors. E.g., business cycle