Ch 8 Questions

12. The square root law of cycle stocks is rooted in the recognition of what? • a. In the EOQ formula, demand (D) is under the square root • b. Cycle stocks are equal to two times the EOQ • c. The sum of holding costs and order placement cost should be minimized d. The EOQ will always be greater than zero

a

13. Compared to a larger warehouse, a smaller warehouse should have __________ inventory turns. (assume all else is equal.) • a. Lower • b. Identical • c. Similar d. Higher

a

14. 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

17. 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

17. Which of the following information is needed to complete a DRP table? I. Store-level demand forecast II. Economic order quantities III. Current inventory levels IV. Lead time information • a. All four types of information are needed • b. Only items I, III and IV are needed • c. Only items II, III and IV are needed d. None of the above

a

20. 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

23. Greater fill rates . . . • indicate better customer service. • require longer dwell times. • require lower in-stock rates. None of the above

a

24. 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

3. _________ is a measure of how often inventories are depleted and replenished over the course of a given time period (e.g., year). • a. Inventory turnover • b. Dwell time • c. In-stock rate d. Fill rate

a

35. If the cost of overstocking is equal to the cost of understocking and average demand is 220 units with a standard deviation of 80 units, the optimal newsvendor quantity . . .? • Will be equal to 220 units. • Will be equal to 300 units. • Cannot be determined from the information given. Will be equal to 140 units.

a

8. Which of the following occurs as the order placement cost (K) increases? (Assume that nothing else changes.) • a. The EOQ increases • b. Annual demand increases • c. The holding cost per unit per year increases • d. None of the above 1 / 1 (100.0%)

a

9. 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

1. What do inventory holding costs typically amount to? • a. $0.10 to $1.50 per unit • b. about 15%-40% of the unit value per year • c. between $25 and $45 per unit per year • d. 100% of the value of a good 1 / 1 (100.0%)

b

11. 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

15. 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

19. For a given store, demand in Week 5 is 375, and on-hand inventory at the end of Week 4 is 450. If the manufacturing lead time for this particular item is two weeks, which of the following statements will be true? • a. The order release for Week 2 will be 450 • b. The order release for Week 3 will be 0 • c. The order release for Week 3 will be 375 d. The order release for Week 4 will be 0

b

2. 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

21. 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

24. All else equal, greater inventories result in which of the following? • Greater fixed assets • Greater current assets • Greater profits Greater accounts receivable

b

28. Items with relatively high annual usage should be managed using which of the following? • Cannot determine from the information provided • Periodic review (frequent) method • Continuous review method Periodic review (infrequent) method

b

28. When an aggregate inventory analysis is performed using data from a company's warehouses, which warehouses will most likely be the best performing? • Those that have the lowest absolute amount of inventory. • Those for which inventories fall on or close to the turnover curve. • Those that have the highest sales volume. None of the above

b

29. When should an optimal reorder point (R,Q) model be used? • Stockout costs are not known and must be optimally estimated • None of the above • A single order is placed for the entirety of the selling season Management sets a service level target of 95%

b

3. 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

30. For a given store, ending inventory in Week 12 is 500, and demand in Week 13 is 700. When will an order need to be released (planned) and for how much in order to satisfy all demand in Week 13 if the lead time is three weeks? • An order of 500 units will need to be released in Week 9. • An order of 200 units will need to be released in Week 10. • An order of 500 units will need to be released in Week 10. An order of 200 units will need to be released in Week 9.

b

33. In a newsvendor context, the cost of overstocking per unit can be computed as follows: • Salvage value + sales price - purchase cost • Disposal cost - salvage value + purchase cost • Purchase cost - sales price + disposal cost Order placement cost + inventory holding cost - stockout cost

b

4. 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

5. The strategic profit model is useful to illustrate which of the following? • a. How firms can minimize inventory holdings • b. How inventory management affects overall firm profitability • c. How increased worker compensation would enhance inventory management efficiency d. That the ROA is calculated as the ratio of net profits and total assets

b

7. In the context of the EOQ model, the term "sawtooth" refers to which of the following? • a. How aggressively managers are able to cut inventory levels • b. The pattern of inventory consumption and replenishment over time • c. The particular item that can be managed using the EOQ approach • d. The basic tool used to build storage facilities • e. All of the above f. Only C and D

b

9. If, in a given scenario, the EOQ is 100, then what will be the average amount of cycle stock? • a. 0 • b. 50 • c. 100 d. 200

b

1. 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

12. 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

13. 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

14. As demand for a given product increases nine fold from one year to the next, all else equal, cycle stocks for this particular product should grow by what factor? • a. 1 • b. 2 • c. 3 d. 4

c

18. 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

18. When should distribution requirements planning be used? • a. When the EOQ formula is not readily available • b. To verify that the EOQ has been correctly determined • c. To determine total requirements in a distribution system d. To determine a retailer's optimal order quantities

c

19. 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

2. What are stockout costs? • a. They are equal to inventory holding costs per unit per year • b. They are trivial in most cases • c. They are difficult to estimate precisely d. They are the same for every product

c

20. In the context of DRP, what is the minimum planning horizon? • a. A measure of supply chain visibility • b. A forecasting technique used in the retail industry • c. The cumulative lead time of the critical path in a distribution system d. A gathering of top logistics executives where new distribution strategies are discussed

c

25. For a given product, the order placement cost is $5, the holding cost per unit per year is $10, and annual demand is 1,600 units. If the EOQ is used, total annual logistics costs will amount to which of the following? • $100 • $200 • $400 • $800 None of the above

c

25. 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

32. Consider the following data pertaining to the three warehouses operated by a company: Warehouse # Std. deviation of lead time demand Pairwise correlations Warehouse 1 Warehouse 2 Warehouse 3 1 430 1 2 430 0.8 1 3 430 0.2 0.1 1 The company considers consolidating any two of its warehouses. Based on the information provided above, in which case will the benefit of warehouse centralization likely be greatest? • Consolidate warehouses 1 and 2 • Consolidate warehouses 3 and 1 • Consolidate warehouses 2 and 3 Consolidate warehouses 1 and 3

c

34. Let the optimal newsvendor quantity for a given product be 80 units. If average demand is 56 with a standard deviation of 18, what can be inferred? • The firm would be more profitable if a quantity closer to average demand was ordered • Overstock costs per unit are greater than understock costs per unit • Expected overstock quantities will be greater than expected understock quantities The firm is not making optimal ordering decisions

c

4. If the in-stock rate is 95%, which of the following is true? • a. Stockouts are observed in 95% of all order cycles • a. 95% of total consumer demand is filled from on-hand inventory • c. There will be no stockout occurrences in 95 out of 100 order cycles d. The dwell time will be 95 days

c

6. What does the EOQ model helps managers determine? • a. Annual demand • b. The magnitude of inventory holding costs (per unit, per year) • c. The size of an individual order • d. Overall firm profitability e. Both A and B

c

8. 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

10. If, in a given scenario, the EOQ is 400, then what will be the average amount of cycle stock? • a. 0 • b. 50 • c. 100 d. 200

d

11. What does the square root law of cycle stocks suggest? • a. Demand increases as the square root of cycle stocks • b. The power of the law increases with cycle stocks • c. The square root of cycle stocks is equal to demand d. Cycle stocks increase as the square root of demand

d

16. 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

16. What does the distribution requirements planning tool do? • a. Decide which materials should be used in production • b. Forecast store-level demand • c. Design a distribution system • d. None of the above e. Both A and B

d

22. 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

23. 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

26. An increase in inventory holding costs per unit, all else equal, will result in which of the following? • Higher optimal order quantities and, thus, lower average inventories • Lower order placement costs • Lower customer demand None of the above

d

26. Which of the following is a possible reason for variations in lead times? • Some products are perishable. • Customer demand is unpredictable. • Orders are placed at various points in time. Trucks can break down or get stuck in traffic

d

27. According to the square root law of cycle stocks, inventory turns in a stocking facility will decrease by _____ when demand levels drop by 75%. • 75% • 25% • 100% 50%

d

27. In inventory management, the primary measure of risk is . . .? • The standard deviation of lead times • The standard deviation of demand • Average lead time demand None of the above

d

6. 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

7. 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

30. For a given product, the optimal order quantity is 600 units, average annual demand is 12,000 units, the average lead time is 1 month, and the optimal safety stock is 400 units. What is the average inventory level for this product? • 1,000 units • 6,000 units • 600 units • 500 units 700 units

e

31. The reorder point model assumes which of the following? • Inventories are reviewed continuously • Demand is random • Lead times are positive • Lead times are random • All of the above Only C and D

e

10. Larger, less frequent replenishments should be scheduled for products with greater annual usage. TrueFalse

f

21. A good inventory manager will strive to minimize inventory holdings. • True False

f

22. Excess inventory . . . • a. leads to costly inventory write-downs. • b. incurs unnecessary physical warehousing costs. • c. causes an increase in stockout costs. • d. ties up capital in inventory that is not needed. • e. All of the above f. Only A, B, and D

f

29. DRP is used to plan the distribution requirements of raw materials, while MRP is used to plan the distribution requirements of finished goods. • True False

f

15. According to the square root law of cycle stocks, an increase in sales should result in an increase in inventory-to-sales ratios. TrueFalse

t

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

t