MGT 302 Final Exam

When a basic fixed-order quantity model is used, which of the following is the total annual ordering cost of inventory given an annual demand of 36,000 units, the cost of placing one order of $80 and a holding cost per unit per year of $4?

$2,400 First find out the EOQ value, which is 1200. This means you will order 36000/1200 = 30 times a year. Hence ordering cost per year = 30*80=2400.

If a vendor has correctly used marginal analysis to select their stock levels for the day (as in the newsvendor problem), and the cost of demand underestimated is $0.90 and the cost of demand overestimated is $0.50, which of the following is the probability of stock out?

0.357 The probability of stockout = 1-critical ratio=1-0.9/1.4=0.357.

A partial MRP plan is listed below: W1 W2 W3 W4 W5 Item A Gross requirements 0 0 0 0 250 Planned order release 250 Item B Gross requirements 250 Scheduled receipts 150 0 0 0 0 Planned order release Item C Gross requirements Scheduled receipts 100 0 0 0 0 Planned order release On-hand inventories are zero for all items. Additionally, item A does not have any scheduled receipts. And it takes components B and C to make end item A. How many units of B needed to make one unit of item A?

1 Gross requirements for item B = 250 = planned order release of item A

A partial MRP plan is listed below: W1 W2 W3 W4 W5 Item A Gross requirements 0 0 0 0 250 Planned order release 250 Item B Gross requirements 250 Scheduled receipts 150 0 0 0 0 Planned order release Item C Gross requirements Scheduled receipts 100 0 0 0 0 Planned order release Based upon the partial MRP table from the previous question, what is the lead time for assembling end item A from B and C? Note: On-hand inventories are zero for all items. Additionally, item A does not have any scheduled receipts. And it takes components B and C to make end item A.

1 week For item A, the Net requirement (=gross requirement - on hand inventory - scheduled receipts) is at week 5 and the planned order release is at week 4. Therefore lead time is one week.

A partial MRP plan is listed below: W1 W2 W3 W4 W5 Item A Gross requirements 0 0 0 0 250 Planned order release 250 Item B Gross requirements 250 Scheduled receipts 150 0 0 0 0 Planned order release Item C Gross requirements Scheduled receipts 100 0 0 0 0 Planned order release Based upon the information presented in the partial MRP table, what and when are the net requirements for component B assuming the purchase lead time for component B is one week? (Note: On-hand inventories are zero for all items.)

100 at week 4 The projected available balance at week 3 = 150. So in week 4, net requirements = 250-150

If monthly demand is 1,000 units, the ordering cost is $6 per order, the unit cost is $100, and the annual carrying "interest" rate is 2.5%, which of the following is the optimal order quantity using the fixed-order quantity model?

240 Since carrying interest rate (i.e. i) is per year and demand is monthly, you need to convert the monthly demand to annual demand.

The Best Western hotel at Oxford always fills up in the evening before hockey games. History has shown that last-minute cancellations of reservation exist and when the hotel is fully booked, the number of cancellations follows a normal distribution with a mean of 5 and a standard deviation of 2. The average room rate is $80. When the hotel is overbooked, the policy is to find a room in a nearby hotel and to pay for the room for the customer. This usually costs the hotel approximately a net value of $220. How many rooms should the hotel overbook? Please use the normal distribution table to answer the question.

3 Co: cost of overestimating cancellation = 220. Cu: cost of underestimating cancellation = 80.

You would like to use the fixed-time period inventory model to compute the desired order quantity for a company. You know that vendor lead time is 10 days and the number of days between reviews is 15. Which of the following is the standard deviation of demand during the review and lead time period if the standard deviation of daily demand is 10?

50

The following information is copied from the previous question: "Company X makes scissors. The bill of material indicates to make one scissor requires one right side of scissor, one left side of scissor, and two screws. Assume the master production schedule calls for 300 scissors to be shipped in week 5 and 0 for all other weeks. To assemble scissors using the left side and the right side of scissors requires 1 week, and the lead time for making the left side of scissors is 2 weeks. The company does not have any on-hand inventory or scheduled receipts for scissors." The company has 100 screws on hand and there are no scheduled receipts for screws. What is the lot size of the planned purchase order of screws when the company uses the lot-for-lot policy?

500 Gross req=300*2 (one scissor requires two screws.) Net req=600 - (0 scheduled receipts+100 on-hand inventory) = 500 Note: EOQ will not be relevant for calculating the order quantity when the lot-for-lot policy is used.

A partial MRP plan is listed below: W1 W2 W3 W4 W5 Item A Gross requirements 0 0 0 0 250 Planned order release 250 Item B Gross requirements 250 Scheduled receipts 150 0 0 0 0 Planned order release Item C Gross requirements Scheduled receipts 100 0 0 0 0 Planned order release Based upon the information presented in the partial MRP table, what are the gross requirements for component C assuming it takes 2 units of C to make one unit of end item A?

500 The planned order release of item A is 250. Hence, gross requirements for C = 250*2=500

April manages the office supplies for the management department. She counts the inventory every 3 days and places an order whenever she reviews the stock. According to her observation, on average the department consumes 15 units of office supplies a day, and the standard deviation of daily demand is 3 units. When she places an order, it takes one day for the order to arrive. On a particular review day, she noticed 30 units of inventory on hand. To provide a 98% service level to her department, how many units of supplies should she order?

About 42.3 First using the normal distribution table, you will find z=2.05 Standard deviation during lead time and review time = sqrt(3+1)*3=6 Target inventory level =4*15+2.05*6=72.3 Order size = 72.3-30=42.3

Which of the following is NOT a good reason to hold inventory? - To build a bank of finished goods to protect customers from a potential strike at your plant. -As needed to improve company cash flow. - As needed to shift from one raw material supplier to another. - To buy ahead in anticipation of significant raw material price increases.

As needed to improve company cash flow.

Which of the following is NOT correct about RFP (request for proposal)? -It is commonly used for purchasing more complex and expensive items. -Bidding occurs in real time. -A number of potential vendors must exist. -The contract duration is short.

Bidding occurs in real time.

The Miami bookstore keeps MacBook Pro on stock to satisfy the demand from students and faculties. As a supplier to the bookstore, Apple manufactures MacBook Pro. Apple needs to manage the assembly components of MacBook Pro to ensure timely manufacturing once receiving purchasing orders from the bookstore. Which model(s) should the bookstore and Apple adopt to manage the inventory of MacBook Pro at the bookstore and the inventory of assembly components of MacBook Air at Apple, respectively? -Bookstore: The fixed-order quantity model with safety stock; Apple: the fixed-order quantity model with safety stock -Bookstore: The fixed-time period model with safety stock; Apple: MRP -Bookstore: The fixed-time period model with safety stock; Apple: the fixed-order quantity model with safety stock -Bookstore: The fixed-order quantity model with safety stock; Apple: MRP

Bookstore: The fixed-order quantity model with safety stock; Apple: MRP

Which of the statement(s) is true about cross-docking? I: Cross-docking is used in consolidation warehouses and targets for local delivery in an area. II: Creating assortment is one of the economic benefits provided by the cross-docking warehouses.

Both

Which of the following statement(s) is correct? I: In the previous example, the vulnerable period (the period during which stock out may occur) is going to be 25 days. II: In the previous example, if a fixed-order quantity model is adopted, the vulnerable period will become shorter.

Both I and II are correct

Gross requirements for non-end items are derived from forecasting based upon the past demand history of these items. T or F?

False

In a single-period inventory model, the critical ratio value indicates the probability of stockout when the order size is set to be the optimal order quantity. T or F?

False

In inventory models, high holding costs tend to favor high inventory levels. T or F?

False

MRP follows the ABC classification to control inventory for different parts and components. T or F?

False

MRP is most valuable where the product configuration is very complex. T or F?

False

The fixed-time period inventory system has a smaller average inventory than the fixed-order quantity system. T or F?

False

The lot-for-lot (L4L) lot sizing technique minimizes setup cost. T or F?

False

The time-phased plan specifying how many and when the firm plans to build each end item is called the Materials Requirements Plan (MRP). T or F?

False

The demand for parts and components managed by MRP is lumpy and unpredictable. T or F?

False In MRP, the gross requirements for components, parts, etc. are considered to be their demand. The demand is lumpy but predictable because the demand is dependent.

In which of the following product manufacturing scenarios, would MRP NOT provide high benefit? -Toyota Camry's manufacturing -Gear fabrication -Appliance assembly -None of the above

Gear fabrication Please study slides 3 and 4. In general assembly operations would benefit the most from MRP. Unlike the other choices in this problem, gears are fabricated not assembled.

Which of the following will reduce the bullwhip effect? -push ordering -order batching -Demand forecast updates based on the order information -Increase operational efficiency

Increase operational efficiency

Which of the following is correct about MRP? -In MRP, only A items should be closely controlled. -MRP follows replenishment philosophy to manage inventory. -MRP is used to manage items with dependent demand. -In MRP, past demand history is used to generate gross requirements for all parts involved.

MRP is used to manage items with dependent demand.

Which of the following is correct about core activities? I: Core activities are key to the business and confer a competitive advantage. II: Core activities should never be outsourced.

Neither I nor II

Which of the following statement(s) is correct? I: Innovative products have higher stockout costs than functional products. II: For functional products, their primary challenge is the market mediation function of the supply chain.

Only I

The daily demand is 78 units and constant. The order lead time is 3 days. The optimal order quantity (EOQ) is 100. Which of the following statement is correct when a fixed-order quantity model is used? I: The reorder point is 234 units. II: The average inventory level is 100.

Only I is correct. Reorder point = 78*3= 234. Since the demand is constant, the calculation of the reorder point does not involve safety stock. The average inventor level is Q/2.

Which of the following cases outsourcing manufacturing is appropriate? I: The design and manufacturing of products are closely connected and require mutual adaptation.II: The product has a modular design and is assembled together using standard modules.

Only II Please study slides 12, 13, and 14.

Which of the following is NOT an input to an MRP system? - Planner order receipts -MPS -Inventory record file -BOM -all of the above are inputs to an MRP system

Planned order receipts this is an output

Which of the following sourcing processes demands high transaction costs? -Vendor Managed Inventory (VMI) -electronic catalog -spot purchase -Request for proposal

Request for proposal

The first step in the MRP explosion process is?

Retrieve the gross requirements for end items from the MPS

Which of the following describes a case where outsourcing is a bad idea? -Significant investments in highly durable relationship-specific assets are needed. -Strong intellectual property protection applies. -The interfaces between adjacent tasks are highly standardized, -The requisite information is highly codified. -The activity is not a strategic activity.

Significant investments in highly durable relationship-specific assets are needed.

Which of the following should be used for an unplanned, one-time purchase of an inexpensive commodity? -strategic alliance -electronic catalog -request for bid -Spot purchase

Spot purchase

Using the ABC classification system for inventory, which of the following is a true statement? -You should allocate about 50% of the dollar volume to "B" items -Generally there are more "A" items than "C" items. -The "A" items are of high dollar volume -The "C" items are of moderate dollar volume

The "A" items are of high dollar volume

The Miami bookstore adopts the fixed-order quantity model with safety stock to manage its inventory of MacBook Air. If the supplier agrees to reduce the order lead time, which of the following statement is correct? (Assuming the bookstore maintains the same desired service level before and after the lead time change.) -The average inventory of MacBook Air in the bookstore will be reduced. -Order intervals will be shorter. -The order quantity will be reduced. -The probability of stock out decreases. -The bookstore will place orders earlier.

The average inventory of MacBook Air in the bookstore will be reduced. In the fixed-order quantity model with safety stock, the average inventory level is Q/2+safety stock. A lead time reduction will reduce the level of safety stock required for the same service level.

Which of the following statements is NOT correct about the bullwhip effect? -Due to the existence of the bullwhip effect, the variability in the orders placed by wholesalers is smaller than the variability in the orders placed by manufacturers from the same supply chain. -The size of orders increases as the orders move from retailers to wholesalers to manufacturers to suppliers. -Due to the existence of the bullwhip effect, excess inventories, insufficient or excessive capacities, and poor customer service often occur. -The bullwhip effect reduces firms' profitability.

The size of orders increases as the orders move from retailers to wholesalers to manufacturers to suppliers. Bullwhip effect: The variability in the orders not the size of order increases.

A master production schedule is an input to a material requirements planning (MRP) system. T or F?

True

A net requirement is the amount needed when the beginning inventory plus the scheduled receipts in a period are not sufficient to cover the gross requirements. T or F?

True

In a fixed-time period inventory model, the interval of time between orders is fixed and order quantity varies. T or F?

True

MRP focuses on manufacturing inventories. T or F?

True

MRP follows requirement philosophy to manage inventory for non-end items. T or F?

True

Safety stock inventory levels are affected by the desired service level. T or F?

True

The fixed-order quantity inventory model requires more time to maintain because every addition or withdrawal is logged. T or F?

True

The lot-for-lot policy sets planned orders' quantity to exactly match the quantity of the net requirements. T or F?

True

The marginal analysis indicates that the optimal stocking level (in a news vendor problem) occurs at the point where the expected benefits derived from carrying the next unit are less than the expected costs for that. T or F?

True

The objective of MRP is to meet manufacturing needs. T or F?

True

The reorder point in the basic fixed-order quantity model (when demand is constant) is lower than the reorder point in the fixed-order quantity model with safety stock (when demand is uncertain). T or F?

True

To achieve the same desired service level, fixed-time period models tend to have more safety stock than fixed-order quantity models because the inventory is not tracked as closely. T or F?

True

Coca Cola's bottling facility which mixes drink ingredients, adds water, and fills up cans and bottles with the drink should be located closer to markets. T or F?

True Bottling is a weight-added operation since this operation involves adding water to the bottle to mix the formula. See slide 41.

Which of the following is not a reason why a firm may choose to outsource an activity? -improve risk management -improve quality -Turn variable costs into fixed costs -shorten time cycle

Turn variable costs into fixed costs

A company uses a continuous review system to manage its inventory. The average daily demand is 12, the lead time is 5 days, the desired "z" value is 1.96, and the standard deviation of demand during lead time is 3. Which of the following statement describes the company's policy regarding when to order? -Whenever the inventory drops to 73 units, place an order. -Whenever the inventory drops to 60 units, place an order. -Place an order every five days. -Whenever the inventory drops to 66 units, place an order.

Whenever the inventory drops to 66 units, place an order. R=12*5 + 1.96*3 Note: if 3 units were the standard deviation of daily demand, R would be 12*5+1.96*sqrt(5)*3

Managing the stock of groceries at home and replenishing it on-demand is analogous to the inventory models we have learned. Assuming the fixed-order quantity model is adopted. Under which of the following instance, will you decrease the order size? (Note: Comparing before and after each instance described below, your annual demand for the grocery items does not change.) -You purchase a new refrigerator to stock your groceries. This new and powerful refrigerator allows you to keep the groceries fresh for a longer period. -Compared to your shopping habit in the past, recently you are more inclined to choose groceries of best deals over those of premium quality. (Note: No matter what type of groceries you purchase, for instance, grapes of high quality vs grapes of best deals, your overall annual demand will not change.) -You purchase the online membership which waives your shipping fee for the orders you place. -Thanks to the neighborhood watch program, burglaries in your neighborhood decrease. The reports on a variety of stolen household stuff including groceries are significantly reduced.

You purchase the online membership which waives your shipping fee for the orders you place. This question focuses on the factors that will affect the EOQ value

Which of the following statement is true about the hub-and-spoke systems in the warehouse design? -The sole purpose of the warehouse in this design is to sort goods. - the term hub refers to the warehouse -It combines the ideas of consolidation and that of cross-docking. -all of the above

all of the above

Which of the following is not a component of total costs in a fixed-quantity inventory system? -annual production labor costs - annual holding costs -annual purchase costs -annual ordering costs

annual production labor costs

Which of the following industry types have high expected benefits from the application of MRP?

assemble-to-order

Which type of the following terms describes the phenomenon of variability magnification as one moves from customer to producer? -bullwhip effect -normal demand -outsourcing -continuous replenishment

bullwhip effect

Which type of the following is identified as an approach used in consolidation warehouses, where, rather than making larger shipments, large shipments are broken down into mixed shipments for local delivery in an area? -third party logistics -international logistics -Hub-and-spoke systems -cross-docking

cross-docking Please also study the key characteristics and benefits associated with cross docking from ppt slides for Module 9.

The master production schedule typically deals with what type of item?

end

Which multi-period inventory system is used for high-priced, critical or important items?

fixed-order quantity

What term is used to describe a practice where a customer purchases excess parts in advance?

forward buying

What type of products include staples that people buy in a wide range of retail outlets?

functional

Which of the following is NOT a major economic benefit provided by warehouses? -enabling postponement -increase flow time -Reducing transportation costs - performing reverse logistics -creating assortment

increase flow time Please study the slide on warehouse design from Module 9.

Which of the following is an example of costs related to the market mediation function of a supply chain? -transportation costs -production costs -lost sales -all of the above

lost sales

Spot purchases have _____ specificity and _____ transaction costs. (fill in the blank with low, medium, or high)

low; low

Which of the followings is not a cause of the bullwhip effect? - information sharing -order batching -Demand forecasting updating -Rationing and shortage gaming

order batching

According to Hau Lee's article, push ordering is an example of:

order batching Check the requirements listed in the learning objectives.

The managerial and clerical costs to prepare purchase or production orders are called:

ordering costs

Which of the following initiatives cannot effectively counteract the bullwhip effect? -VMI -consumer direct -periodic ordering -everyday low prices

periodic ordering Check the requirements listed in the learning objectives.

A product with high demand uncertainty and low supply uncertainty should utilize which type of supply chain?

responsive

Southern Printing Corp. produces high-end booklets for university graduations listing all the participating students at a given university. What inventory model would Southern use to optimize the amount of booklet inventory produced for each graduation?

single-period

Which of the following is a sourcing term to describe how common an item is and/or how many substitutes may be available? -bullwhip effect -outsourcing -uniqueness -specificity

specificity

Which type of supply process is one where the manufacturing and technology base are mature?

stable

Compared to other traditional warehouses, which of the following is NOT a benefit provided by cross-docking? -reduced damage -reduced flow time -increased inventory turnover -stockpiling to accommodate seasonal demand

stockpiling to accommodate seasonal demand Please study slides 33 and 34. Since cross-docking does not involve stock inventory, stockpiling to accommodate seasonal demand which is one benefit associated with traditional warehouses, is not a benefit offered by cross docking.

According to the logistics-system design matrix, which of the following modes of transporting products has the highest capacity and a very low cost? -highway -hand delivered - rail -water

water

Company X makes scissors. The bill of material indicates to make one scissor requires one right side of scissor, one left side of scissor, and two screws. Assume the master production schedule calls for 300 scissors to be shipped in week 5 and 0 for all other weeks. To assemble scissors using the left side and the right side of scissors requires 1 week, and the lead time for making the left side of scissors is 2 weeks. The company does not have any on-hand inventory or scheduled receipts for scissors. When should the company release the order to make the left side of scissors, assuming the company has no on-hand inventory or scheduled receipts for the left side of scissors?

week 2 Planned order release for scissor is at week 4. Therefore with 2 week lead time, the planned order release for the left side of the scissor should be week 2.