MKT 411 TEST 2
Check My Work Which of the following is TRUE regarding the EOQ figure below?
The EOQ is at lot size G, and curve K is the annual holding cost curve.
If your company had an annual purchase cost of items equal to $2,000,000, an annual holding cost of $150,000 and an annual ordering cost of $50,000 this scenario would reveal that:
Your order lot size was higher than the EOQ
Which of the following is true under the Periodic Review System?
a higher level of safety stock is needed to buffer against uncertainty in demand over a longer planning horizon, compared to the EOQ system
The __________ specifies which end product is to be made, how many are required, and when they need to be completed.
aggregate production plan
Bill of Materials
an engineering document that shows an inclusive listing of all component parts and assemblies making up the end item
Cause & Effect Forecasting
assumes one or more factors (independent variables) predict future demand; all quantitative methods become less accurate as forecast's time horizon increases
Time Series Forecasting
assumes the future is an extension of the past; historical data is used to predict future demand
A (ABC)
highest priority with larger safety stocks. they account for approximately 20% of the total items & about 80% of the total inventory cost
Quantitative forecasts use mathematical techniques that are based on:
historical data
Inventory Turnover
how many times inventory turns in an accounting period. the higher the better. cost of revenue/average inventory
Inaccurate forecasts can result in negative outcomes like:
imbalances in supply and demand
Trend variations
increasing or decreasing over many years
Holding/Carrying Costs
incurred for holding inventory in storage
Fixed Costs
independent of the output quantity (buildings, equipment)
Bullwhip Effect
ineffective communication between buyers and suppliers and infrequent delivery of materials, combined with production based on poor forecasts along a supply chain that results in either too little or too much inventory at various points of storage consumption
Enterprise Resource Planning System (ERP)
integrates internal operations with a common software platform & centralized database system (meant to optimize three thins in an organization: information, materials, cash)
Delphi Method
internal and external experts are surveyed during several rounds; summary of responses is sent out to all the experts & they can modify responses in next round; good for high-risk technology forecasting; large, expensive projects; or major new product introductions
Dependent Demand
internal demand for parts based on demand of the final product in which parts are used (subassemblies, components, raw materials)
Which of the following is a disadvantage of carrying too much inventory?
it creates an unnecessary waste of scarce resources
Classify the following inventory items as either A, B, or C items using the ABC inventory control system:
item 1 (C), item 2 (A), item 3 (C), item 4 (B), item 5 (C)
Four models of qualitative forecasting
jury of executive opinion, Delphi method, sales force composite, consumer survey
According to the textbook, which of the following is considered a reason that ERP implementations fail?
lack of communication within an organization
Bullwhip Effect Causes
lack of communication, price fluctuation, forecasts including safety stock, delivery lead time, slow moving consumer demand
Your company is conducting forecasting that revolves around population growth in large cities. This type of forecasting can be referred to as what component of a time series?
trend variations
Components of Time Series Models
trend variations, cyclical variations, seasonal variations, random variations
The inventory turnover ratio shows how efficiently a firm is using its inventory to generate revenue.
true
Exponential Smoothing Forecast
type of weighted moving average - only two data points are needed
Random variations in a Time Series component are due to:
unpredictable events
Raw Materials
unprocessed purchase inputs
Simple Moving Average Forecast
uses historical data to generate a forecast. works well when demand is stable over time
Quantitative forecasting
uses mathematical models & historical data to make forecasts; time series and cause and effect
Variable Costs
vary with output level (materials)
Cyclical variations
wavelike movements that are longer than a year (business cycle)
Advances in Technology
- 5G enables services to decrease latency- internet of things- labor and skill shortages will persist
Major Categories of Inventory Cost
- Direct Costs- Indirect Costs - Fixed Costs- Variable Costs - Order Costs - Holding or Carrying Costs - Setup Costs
Benefits to an ERP system
- added visibility to reduce supply chain inventories- helps to standardize manufacturing processes- measure performance & communicate via a standard method
Why ERP systems have grown/become more common
- business replaced legacy MRP systems to deal with the Y2K population- rapid development of computer and info technology over last three decades contributed positively to the growth- tasks previously limited to mainframe computers are easy to implement on today's systems at lower cost
Re-shoring production
- companies are growing more risk averse with their global footprint- 68% of shippers in the survey believe new supply chains have become too global- single source of supply now includes a single region or country, not just a single company
Supply Chain as-a-service
- companies are looking at spare capacity as an alternative source of profit rather than cost centers, the way they have been traditionally viewed- include inventory management, reverse logistics, logistics consulting, sources, and customer service
Assumptions of the EOQ Model
- demand must be known & constant - order lead time is known & constant - replenishment is instantaneous - price is constant - holding cost is known & constant - ordering cost is known & constant - stockout are not allowed
How RFID automates the supply chain
- materials management: goods automatically counted and logged as they enter supply warehouse - manufacturing: customer configurations encoded ont ag can be incorporated automatically during the production process - distribution center: shipment leaving DC automatically updates ERP to trigger replenishment order and notify customer for delivery - Retail Store: reader replaced on store shelf to trigger automatic replenishments when item reaches its reorder point
Weakest Points in Supply Chain
- mismatch between china's production and US ability to move it through the chain - high potential bottleneck at ports of Los Angeles and Long Beach (49.1%) - storage of shipping containers - shortage of truck drivers
Just In Time Manufacturing can still enable a supply chain
- short, domestic supply sources - leveling production - cross functional teams
Benefits of CPFR
- strengthens partner relationships- provides analysis of sales & order forecasts- uses point of sale data, seasonal activity, promotions to improve forecast activity- manages demand chain & eliminates problems before they appear- allows collaboration on future requirements & plans- uses joint planning & promotions management- integrates planning & promotions management- integrates planning, forecasting, and logistics activities- provides efficient category management and understanding of consumer purchasing patterns- provides analysis of key performance metrics to reduce supply chain inefficiencies, improve customer service, increase revenues and profitability
Unique Challenges of Managing Perishable Inventory
- trying to sell food to consumers before the expiration date - stores throw out food that is still good for a number of reasons - if one piece of produce is bad it has contaminated the rest of the batch
If at the end of the year, the cost of revenue = $2,500, total revenue = $12,000 and inventory value = $2,000, the inventory turnover ratio would be:
1.250
Using the data set below, what would be the forecast for period 4 using a three period moving average: (Choose the closest answer.)
11,883
Using the data set below, what would be the forecast for period 5 using a four period weighted moving average? The weights for each period are 0.05, 0.15, 0.30, and 0.50 from the oldest period to the most recent period, respectively. (Choose the closest answer.)
13,710
Using the data set below, what would be the forecast for period 5 using the exponential smoothing method? Assume the forecast for period 4 is 14000. Use a smoothing constant of α = 0.4 (Choose the closest answer.)
14,030
A forecasting method has produced the following data over the past 5 months shown in the data set. What is the mean absolute deviation (accurate to 1 decimals)?
2.4
The College Bookstore sells a unique calculator to college students. The demand for this calculator has a normal distribution with an average daily demand of 20 units and a standard deviation of 4 units per day. The lead time for this calculator is 9 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer.
200 units
The College Bookstore sells a unique calculator to college students. The demand for this calculator is constant at 20 units per day. The lead time for this calculator is variable at an average of 9 days with a standard deviation of 2 days. Compute the statistical reorder point that results in a 95 percent in-stock probability. Choose the closest answer.
246 units
Complete the following MRP record and provide the planned order releases for Week 1. Lead time is 2 weeks. Safety stock is 3. Use LFL lot sizes.
29
The cost of a product is $5, and the carrying cost rate is 20%; the cost of processing an order is $45 and the annual demand is 1000. What is the economic order quantity (EOQ)?
300
When demand and delivery lead time are known and constant, daily demand = 8, purchase lead time = 5 days, and the purchase price = $20/unit, then the reorder point is:
40
Use the information below to calculate the number of orders per year when using the EOQ:
49
Based on the information in the data set below, what is the mean squared error (accurate to 1 decimal)?
8.0
Which of the following would refer to the 80/20 rule when applied to the ABC inventory control system?
80 percent of the total annual $ usage is accounted for, by 20 percent of the items.
Total Annual Inventory Cost (TAIC)
= annual purchase cost + annual holding cost + annual order cost
Calculate the final discrete available-to-promise quantity for Week 1 using the following table.
ATP1= 10
Using the ________________ multiple software infrastructures and databases may have to be used to link the multiple applications obtained from different vendors.
Best-of-breed solution
Which of the following would be considered a dependent demand item?
Bicycle tires used to assemble a bicycle
An advantage/benefit of utilizing an ERP system includes which of the following?
Both "ERP systems are designed to take advantage of Internet technology" & "ERP systems enable the firm to automate some of the steps of a manufacturing process
Challenges to implementing ERP system
Challenges to implementing ERP system
Not all ERP software is designed to provide the exact same tools, nonetheless, some of the common modules usually included in ERP software packages include:
Customer relationship management and Human resource management
Why are firms migrating to ERP systems?
ERP systems tie together a variety of specialized systems
Which of the following is considered an advantage/benefit of utilizing an ERP system?
Enables the company to utilize a single centralized database system, thus eliminating duplicate data entries
The ___________ planning horizon is shorter than the aggregate production plan's, but must be longer than a firm's production lead time to ensure the end item can be completed within the planning horizon?
Master production schedule
Which of the following is NOT an assumption of the economic order quantity (EOQ) model?
Production and use occur simultaneously
Four Major Categories of Inventory
Raw Materials, Work in Process (WIP), Finished Goods, Maintenance/Repair/Operating (MRO)
Which one of the following is NOT a reason for firms to carry inventory?
To increase production change/setup costs
Which of the following is a benefit of CPFR?
a. Integrates planning, forecasting and logistics activities b. Provides an analysis of key performance metrics c. Uses joint planning and promotions management d. All of these choices are correct.
The primary purpose of the basic economic order quantity (EOQ) model is to:
a. Maximize the customer service level b. Calculate the optimum safety stock level c. Calculate the reorder point, so that replenishments take place at the proper time d. Minimize the sum of purchase cost and holding cost e. None of these choices are correct
Legacy MRP systems had which of the following limitations?
a. The systems were designed to perform a very specific operational function b. The systems were not user-friendly c. The systems needed continuous modifications d. All of these choices are correct.
B (ABC)
account for the other 40% of total items & 15% of inventory cost
"Fixing" Supply Chain issues
advances in technology, re-shoring production, supply chain as-a-service
Weighted Moving Average Forecast
based on an n-period weighted moving average
Qualitative Forecasting
based on opinion and intuition; used when data are limited, unavailable, or not currently relevant
Two Types of ERP implementation
best-of-breed & single integrator solution
The impact of poor communication and inaccurate forecasts resonates along the supply chain and results in the:
bullwhip effect
Collaborative Planning, Forecasting, and Replenishment (CPFR)
business practice that combines the intelligence of multiple trading partners in the planning & fulfillment of customer demands. Links sales and marketing best practices, such as category management, to supply chain planning processes to increase availability while reducing inventory, transportation & logistics costs
Indirect Costs
cannot be traced directly to the united produced (overhead)
Which of the following basic production strategies works best with make-to-order manufacturing firms?
chase production strategy
Finished Goods
completed products ready for shipment
Carrying Costs
costs that a business pays for holding inventory stock (damage, theft, pilferage, obsolescence, excess capital invested, freight and storage)
Jury of Executive Opinion
group of senior management executives collectively develop the forecast; good for long range planning and new product introductions
Independent Demand
demand for end products & has demand pattern affected by trends, seasonal patterns, and general market conditions
ABC Inventory control system
determines which inventories should be counted and managed more closely than others
Top 3 Challenges for CPFR Implementation
difficulty of making internal changes, cost, money
Order Costs
direct variable costs for placing an order
Direct Costs
directly traceable to unit produced (labor)
Random Variations
due to unexpected or unpredictable events such as natural disasters
Two major RFID standards
electronic product code standard &n 1800 standard of the international standards organization
If an item is ordered using its economic order quantity, the annual carrying cost should be:
equal to the annual ordering cost
All of the following may influence demand and should be considered when developing a forecast EXCEPT
ergonomic conditions
Bullwhip Effect Costs
excessive inventory investment, unnecessary holding costs
The real value of Collaborative Planning, Forecasting and Replenishment (CPFR) comes from:
exchange of forecasting information
The ABC inventory control prioritizes dependent demand inventory items into three groups, A, B, and C. A items receive the smallest amount of safety stock, while C items typically have the most safety stock.
false
The four categories of inventory are raw materials, intermediate assemblies, work-in-progress and finished goods.
false
Three Primary Time Frames of Resource Planning
long range: aggregate production plan usually covers a year or more, involves the construction of facilities and major equipment purchaseintermediate: plan spans six to eighteen months. shows the quantity and timing of end items (master production schedule)short-range: plan covers few days to few weeks. detailed planning process for components & parts to support the master production schedule (materials requirement planning)
C (ABC)
lowest value and lowest priority. account for remaining 40% of total items & 5% of total inventory cost
Which of the following is NOT a common module of ERP systems?
marketing resources management
Which of the following seeks to develop short range plans seeking to effectively and efficiently manage components and/or subassemblies over time period of few days to a few weeks?
material requirements plan
Maintenance, Repair, and Operating (MRO)
materials and supplies used in producing products (cleaners and brooms)
Production "Capacity"
maximum workload that an organization is capable of completing in a given period of time
Which strategy uses overtime and subcontracting to cope with the high demand periods?
mixed production strategy
Time Series Models
most frequently used among all the forecasting methods
If an available-to-promise (ATP) for any period is negative, the deficit must be subtracted from the:
most recent positive ATP
Time Series Methods
naive forecast, simple moving average forecast, weighted moving average forecast, exponential smoothing forecast, linear trend forecast
Work in Process (WIP)
partially processed materials not yet ready for sales
Single Integrator Solution
picks all desired applications from single vendor; advantages: all the applications should work together & getting the system up and running should be easier
Best-of-Breed
picks best application for each function; some businesses require this method for advanced or big data analytical decision makingS
Cyclical variations are longer than a year and can be influenced by:
political factors
Routing
process of creating the most cost effective route through minimization of distance or travel time necessary
When there is not a lot of currently relevant data available it is generally best to use:
qualitative forecasting
Three primary forecasting techniques
qualitative, quantitative, time series models
Economic Order Quantity (EOQ) Model
quantitative decision model based on the trade-off between annual inventory holding costs & annual order costs; seeks to determine optimal order category
Setup Costs
related to machine setup
Near Field Communication (NFC)
secure form of data exchange between an NFC tag & android powered devices
Seasonal Variations
show peaks and valleys that repeat over consistent interval (hours, days, weeks, months, seasons, or years)
Which one of the following is NOT a type of qualitative forecasting?
simple moving average
The ___________ solution picks all the desired applications from a single vendor for the ERP system.
single integrator
In 2016, Spin Master, did not properly forecast demand for their new product, Hatchimals, causing ___________ for their distributors.
stockouts
According to the textbook, the top three challenges for CPFR implementation include all of the following EXCEPT:
supplier lead times
Stockout Cost
the costs incurred when a company runs out of a product, including transaction costs to replace inventory and the loss of customers' goodwill (lost sales, future deals, image and reputation)
When linear trend forecasts are developed, demand would typically be:
the dependent variable
Order to Cash
the entirety of a company's order processing system
Naive Forecast
the estimate of the next period is equal to the demand in the past period
Which strategy allows finished goods inventories to accrue and relies on backlogs to handle the demand?
the level production strategy
Procure To Pay
the process of integrating purchasing and accounts payable systems to create greater efficiencies
Legacy MRP systems typically utilized multiple software packages and databases which caused:
the same information to be stored in multiple locations
While ERP is a relatively new technology, it has grown rapidly since the early 1990s. Which of the following is the reason that has contributed to its rapid growth?
the year 2000 millennium bug
Methods of Quantitative Forecasting
time series & cause and effect
Primary Goal of Forecasting
to minimize deviation between actual demand and forecast
A positive error implies that a forecast was?
too low
Radio Frequency Identification (RFID)
tracks individual unit of goods. does not require direct line of sight to read a tag and information on the tag is updatable
Linear Trend Forecast
trend can be estimated using simple linear regression to fit a line to a time series
