Operations Management Exam 2

A company is planning for its financing needs and uses the basic fixed-order-quantity inventory model. Which of the following is the total cost (TC) of the inventory given an annual demand of 10,000, setup cost of $32, a holding cost per unit per year of $4, an EOQ of 400 units, and a cost per unit of inventory of $150?

$1,501,600

Cost accounting logic can lead managers to keep their resources busy all the time, increasing productivity with no regard to demand. What is the negative result from this effect?

Excessive Inventory

Using the Theory of Constraints, what is the first thing a manager would do after a bottleneck is identified?

Exploit the bottleneck

Dr. Eli Goldratt feels that the goal of a firm is to make useful products efficiently. (T/F)

False

Ordering cost only consists of the shipping cost from supplier to customer. (T/F)

False

The simplest way to think about throughput is the quantity of work completed.

False

The standard deviation of demand during lead time is the same whether or not lead time is variable.

False

The first step in the Theory of Constraints is to:

Identify the bottleneck

In supply chains, inventory held "upstream" can result in lower aggregate average inventory values because transformational "value adding" processes have not yet been performed. On the other hand, it is sometimes moved "downstream" closer to the customer (forward placement) in order to:

Improve speed of customer delivery

Given the set of inventory assumptions about "How much to order" discussed in class, the order quantity that produces the lowest total annual holding and order costs is...(Pick all that apply)

Commonly called Economic or Optimal Order Quantity (Qeoq or Qopt) AND The quantity where annual holding costs = annual ordering costs

When lead time and demand are both variable, the formula we use consists of which two parts? (select two)

Demand variability, Lead time variability

Which of the following is one of Dr. Eli Goldratt's rules of production scheduling for optimized production technology?

Do not balance capacity, balance the flow.

Using the data given in the EOQ sample problem used in class (D = 4,800, S = $40 and H = $2.50), what happens if holding costs (H) are $3.50 per unit? (Pick all that apply)

EOQ decreases / Time between orders decreases

Which of the following is a fixed-order-quantity inventory model?

Economic order quantity model

Supply chain management has evolved from being primarily concerned with purchasing decisions to a more strategic role in many firms. What evidence best supports this view?

The involvement of more complex processes and decisions that are of strategic importance to the firm.

To take into consideration demand uncertainty in reorder point (R) calculations, what do we add to the product of the average daily demand and lead time in days when calculating the value of R?

The product of the standard deviation of demand variability and a z-score relating to a specific service probability

According to the theory of constraints, which of the following is an operational measurement that can be used to measure the firm's ability to make money?

Throughput

Innovative product and responsive supply chain

Trendy Clothes

A financially driven reason for outsourcing is that it can reduce costs through a lower cost structure. (T/F)

True

A firm that controls most of the activities in its supply chain is said to be vertically integrated. (T/F)

True

In a process sequence where a product flows from process A to process B, process B is called the dependent process. (T/F)

True

Inventory is defined as the stock of any item or resource used in an organization. (T/F)

True

Inventory turn values that are considered good differ by industry and the type of products being handled. (T/F)

True

The output of a factory can be no higher than the output of the slowest machine, the constraint of the system. (T/F)

True

The phenomenon that magnifies the variability in order quantities for goods as orders move through the supply chain from the customer to the producer is called the bullwhip effect. (T/F)

True

Since standard deviations don't sum, we have to sum which thing instead?

Variance

If vertical integration costs more, why would Zara do it?

Vertical integration allows firms greater control of capability design, management, and responsiveness

Throughput is generally equal to which thing?

arrival rate

Ordering cost is which type of cost?

fixed

Made-to-Stock (MTS) strategies typically use continuous flow, line, or large batch processes in order to...

focus on cost efficiency and speed of delivery..

Weeks of supply is another key metric also indicating the efficiency of a supply chain. When this number is increasing without an increase in average aggregate inventory, it likely indicates __________.

that sales may be lagging (slowing).

What is the term used for the act of moving some of a company's internal activities and decision-making processes to outside providers?

Outsourcing

Which of the following is NOT true about outsourcing?

Outsourcing always lowers your total costs

Using the simple order quantity model in an inventory control problem, Kathy calculated the order quantity to be 1,000 units. In a review, she found out that the demand is actually double that of the quantity she had used and the holding cost is only half that of the value she used. The new economic order quantity using the correct data will be

2000

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 78 units and a lead time of 3 days?

234

If the average aggregate inventory value is $45,000 and the cost of goods sold is $10,000, which of the following is weeks of supply?

234

Assuming no safety stock, what is the reorder point (R) given an average daily demand of 50 units, a lead time of 10 days, and 625 units on hand?

500

Which of these is a true statement? (Choose all that apply)

A factory's bottleneck can change depending on what products are being made. A factory's bottleneck can change depending on what products are being made, A system can have more than one bottleneck. A system can have more than one bottleneck.

Zara is an example of a company using supply chain management for strategic positioning in the market. Examples of this include which of the following? (Pick all that are correct)

A high degree of vertical integration AND Employing responsive supply chains for trendy products

Functional product and efficient supply chain

A loaf of bread

Why is "Finished Goods" inventory held at higher dollar value on balance sheets than "Raw Material"?

Because it reflects higher value-added from processing

Based on our ZARA case discussion, what lead time advantage does Zara enjoy against other industry competitors and why does it matter?

Lead times for trendy products in weeks for Zara vs. in months for competitors, increasing the probability that Zara will have what customers want when they want it.

Why was it so challenging for the supply of toilet paper to keep up with the sudden increase in demand during the pandemic?

Manufacturers had very little idle capacity (low capacity cushions) / It is costly to change from commercial to consumer production / Additional links in the supply chain increased the risk of a "bullwhip" effect

Which of the following would be considered part of Ordering Cost? (choose all that apply)

Minimum shipping charge Minimum shipping charge, Renting a truck to haul the order (and only this order, no other business is used for this truck's one time rental) Renting a truck to haul the order (and only this order, no other business is used for this truck's one time rental)

What are the three financial measurements necessary to adequately measure a firm's performance?

Net profit, return on investment, cash flow

Throughput is a ...?

Rate

Considering The Bullwhip Effect, which of the following is not true?

Sharing information and synchronization of supply chain decisions can completely eliminate The Bullwhip Effect

From a financial point of view, sourcing and supply chain decisions impact a firm in all of the following ways except:

Sourcing decisions directly impact the firms ability to exploit bottlenecks

Inventory turnover is a key metric often used to indicate supply chain efficiency. Which of the following are ways operations can positively impact this metric? (Pick all that are correct)

Sourcing decisions that increase sales. AND Forecasting and inventory management practices that reduce excess inventory.

Finding average demand during lead time involves doing which of the following?

Summing the daily average demand per day

Which of the following are true about the importance of supply chain management? (Select all that apply)

Supply chain management directly impacts cost, quality, and availability of raw materials AND Supply chain management directly impacts inventory turnover and return on assets