SCM Exam 2
How many distribution centers are needed if a company promises to get products to its customers all over the United States within 3 days after they place the order? (round up your estimation) Please use the following data for your estimation: The area of the United States is 3,797,000 square mile, The driver works 8 hours per day, The average driving speed is 50 miles per hour, We do not consider the driver driving back to the original place, and PI is assumed to be 3.
# of distribution centers = (Area of Unites States) ÷÷ (Serving Area of a Distribution Center) = 3,797,000 ÷÷ PI*(driving time * driving speed)^2 = 3,797,000 ÷÷ 3*(3 days * 8 hours/day * 50 miles/hour)^2 = 3,797,000 ÷÷ 3*(1,200)^2 = 3,797,000 ÷÷ 4,320,000 =1
Avon Barksdale's operation uses large quantities of prepaid cell phones, on average 500 per week with a standard deviation of 45. The lead time for their own brand of prepaid cell phones is two weeks and they have a lot size of 200 phones. Mr. Barksdale sets their reorder point at 1,100 phones. (Round your answers to be whole numbers) (1) What is the average demand during their lead time (DDLT)? DDLT =
(1) What is the average demand during their lead time (DDLT)? DDLT = 1000 phones (2) What is the safety stock (SS)? SS 100= phones (3) What is the cycle stock? Cycle stock =100 phones (3) What is the average inventory? Average inventory =200 phones
What is supply chain network?
-Facilities (e.g., supplier factories, manufacturing plants, warehouses, distribution centers, retail outlets) -Links between facilities (e.g., flows of product, information, and money)
Safety stock is required because demand and supply are uncertain, and a product shortage may result if actual demand exceeds the forecast demand or if supply is later than anticipated. Which of the following statement(s) regarding safety stock is(are) true? (Select all correct answers)
-Given the product variety and high demand uncertainty in most high-tech supply chains, a significant fraction of the inventory carried is safety inventory. -Safety inventory is inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period. -Raising the level of safety inventory increases product availability and thus the margin captured from customer purchases.
Three levels of forecasting
-Strategic (yearly) -Tactical (quarterly/monthly) -Operational (weekly/daily)
Why does a sandwich shop maintain an inventory of baked bread, sliced tomatoes, and etc.? (Select all answers that are correct.) Correct!
-To cover the long processing time. -To buffer against demand, supply, and/or processing uncertainties. -To smooth operations so that workers won't too busy during peak demand time or too idle during low demand time. -To decouple processes so that the processes do not depend on each other too much.
A North Face retail store in Twin city sells 500 jackets each month. Each jacket costs the store $100 and the company has an annual holding rate of 25%. The fixed cost of a replenishment order (including transportation) is $30. If the store wants to minimize the annual ordering and holding costs, what order quantity do you recommend?
120 units
Cycle inventory is the average inventory in a supply chain due to either production or purchases in lot sizes that are larger than those demanded by customers. Based on question #2, what is the cycle inventory? We assume that demand is stable and constant.
40
A lot size or batch size is the quantity that a stage of a supply chain either produces or purchases at a time. Consider a computer store that sells an average of four printers a day. The store manager orders 80 printers from the manufacturer each time he places an order. What is the lot size or batch size?
80
Suppose you are the manager of the coffee shop (the Cabin) at Davies Center, you estimate that the average daily demand for coffee is about 530 cups, of course, it varies day by day and you have never sold exactly 530 cups a day. You further figure out that the standard deviation of daily coffee demand is 167 cups. That is, the daily coffee demand at your store follows a normal distribution ~N(530, 167). You have taken the SCM class and learned that you can aggregate your daily demand by week to improve your forecasting accuracy. What is the coefficient of variation (CV) for your daily coffee demand? What is the coefficient of variation (CV) for your weekly coffee demand? (assume there are five working days a week)
CV = standard deviation/mean. It measures volatility or uncertainty. (1) CV for daily demand the mean of daily demand = 530 the standard deviation of daily demand = 167 CV for daily demand = 167/530 = 0.32 (2) CV for weekly demand the mean of weekly demand = 530*5 because there are 5 working days a week the standard deviation of weekly demand = 1672∗5‾‾‾‾‾‾‾‾√1672∗5 CV for weekly demand = 1672∗5√530∗5=167530∗15√=0.141672∗5530∗5=167530∗15=0.14
Which one of the following parties moves or transports the product?
Carrier
When demand is steady, cycle inventory and lot size have which of the following relationship:
Cycle Inventory = Lot Size/2.
What is a supply chain network? Or what are the key elements of a supply chain network? Your Answer:
Facilities and links between facilities . Key elements include, value provided to a customer through supply chain design and providing variety and product availability.
Which of the following products is best transported by air? Correct!
Flowers
Three forecasting truisms/properties & their implications:
Forecasts are always wrong. → Why? So what? ▪ Include a forecast error in your forecast. o Aggregated forecasts are more accurate. → Why? So what? ▪ Aggregate demand by SKU, location, and/or time to reduce demand uncertainty (measured by coefficient of variation=standard deviation/mean). ▪ The ideas of risk pooling and modularity/parts commonality are based on this forecasting property. o Shorter horizon forecasts are more accurate. → Why? So what? ▪ The idea of postponement is based on this forecasting property
Amazon sells thousands of books online. Best-selling books are stocked regularly in Amazon's warehouses nationwide. Some of the slowest-moving books are directly obtained from the publisher when requested by a customer. Amazon uses which of the following supply chain drivers to provide the right balance of responsiveness and efficiency?
Inventory
In most of the world, trucks carry a large fraction of the goods moved. The trucking industry consists of two major segments: truckload (TL) and less-than-truckload (LTL). Which of the following statement is not true? Correct!
LTL usually is cheaper than TL because it encourages shipments in small lots.
Mean squared error (MSE):
MAE = (2+5+20+10+5)/5 = 8.4 MSE = (4+25+200+100+25)/5 = 110.8
The manager of the Cabin (the coffee shop at the Davies Center) understands the importance of collecting and maintaining historical sales data because he could use it to evaluate how accurate his forecasts are and how he could improve. The table below is the actual sales and forecast data for the macchiato coffee. ForecastActualMonday5048Tuesday4045Wednesday5535Thursday4030Friday5055 According to the lecture, there are several different metrics that can be used to estimate how much error there is in a forecast. Please find the values for the following two metrics (round up to one decimal) Mean absolute error (MAE):
MAE = (2+5+20+10+5)/5 = 8.4 MSE = (4+25+200+100+25)/5 = 110.8
As we discussed in the lecture, every inventory replenishment model has to make some assumptions. Which of the following is not an assumption for the basic Economic Order Quantity (EOQ) model?
Multiple products
Determining how frequently cases of soda should be delivered to a retail outlet.
Operational
Based on the above North Face retail store question, what is the replenishment cycle time (in days) between two orders if the store manager orders at the optimal order quantity? Assume 300 days in a year.
Pay attention to the units. number of orders = D/Q = 6,000 units per year/120 units per order = 50 orders per year replenishment cycle time = 1/ number of orders = 1/ 50 orders per year = 0.02 year per order to make replenishment cycle time more sense we use days instead of year, therefore, replenishment cycle time = 0.02 year per order *300 days per year = 6 days per order
What are possible supply chain network design options?
Retail storage with customer pickup (e.g., Walmart stores) o Distributor storage with direct shipping or milk run (e.g., Amazon) o Manufacturer storage with direct shipping (e.g., Nordstrom.com)
Which one of the following parties requires the movement of the product between two points in the supply chain?
Shipper
Adding a very fast replenishment option instead of holding inventory in a distribution center.
Strategic
The VP of Supply Chain has received from Marketing a projection of the volume of product they expect will be sold for the new products. This projection was prepared based on a small-scale market test they ran in three cities in Eau Claire. This approach to forecasting can be best described as
Testing the market is an experimental approach to forecasting. The expectation is that demand for the new product in the three selected cities should be representative of the demand that can be expected once the product is deployed throughout the region.
As a way to validate the forecast above, the VP of Marketing has decided to invite a dozen of her peers to a meeting at UWEC Cereals' headquarters, including VPs of Marketing from other companies that are not direct competitors of UWEC Cereals but do have first-hand experience with muesli products. The expectation is that their combined expertise with this type of cereals should allow them to produce a decent forecast for UWEC Cereals.
The VP of Marketing has assembled a jury of experts, a judgmental approach to forecasting. Although subjective, the idea is that their experience with the product in other regions of the United States should give them insights into how the muesli may play out in Eau Claire.
Walmart's excellent transportation network design has contributed to its supply chain success. Walmart builds many large stores in a geographic area supported by a DC. As a result, the total lot size to all stores from each supplier fills trucks on the inbound side to achieve economies of scale. On the outbound side, the sum of the lot sizes from all suppliers to each retail store fills up the truck to achieve economies of scale. Which of the following describes Walmart's transportation network design?
The correct answer is cross-docking because both the inbound and the outbound shipments can be coordinated therefore there is no need to stock (or accumulate) inventory at the DC (in order to fill a truckload).
To understand how a supply chain makes the lot size decision, we first need to identify supply chain costs that are influenced by lot size. Which of the following statement is not true?
The costs considered in lot sizing decisions include material cost, fixed ordering cost, and manufacturing cost
There is usually a fixed administrative cost to place an order, a fixed trucking cost to transport the order, and a fixed labor cost to receive the order. For example, Macy's incurs a cost of $400 for the truck regardless of the number of pairs of jeans shipped. If the truck can hold up to 2,000 pairs of jeans, a lot size of 100 pairs results in a transportation cost of $4/pair, whereas a lot size of 1,000 pairs results in a transportation cost of $0.4/pair. Which of the following statement regarding the fixed ordering cost is not true?
The fixed ordering cost increases as the ordering quantity increases, therefore the store manager should order small lot sizes.
Home Depot started with a direct shipment network, given that most of the stores it opened until 2002 were large stores. However, the direct shipment network proved to be problematic as Home Depot started to open smaller stores. Which of the following justifies the use of a direct shipment network?
The large shipment size from each supplier to each store. (A direct shipment network is justified only if demand at each store (location) is large enough so that optimal replenishment lot sizes are close to a truckload from each supplier to each location.)
The Economic Order Quantity (EOQ) model essentially makes a trade-off between ordering costs (fixed costs per order) and inventory holding costs (variable costs per item held). Which of the following statement is not true?
The ordering cost is a linearly function with respect to the order quantity.
A milk run network lowers transportation costs by consolidating shipments to multiple locations on a single truck. Which of the following justifies the use of a milk run network?
The quantity destined for each location is too small to fill a truckload but multiple locations are close enough to each other such that their combined quantity fills the truck.
According to the lecture, which of the following statement is not true?
The result when each stage in the supply chain makes its own separate forecast is often a match between supply and demand because these forecasts are often very different.
Based on the above North Face retail store question, what are the total relevant costs (= annual ordering cost + annual holding cost) if the store manager orders at the optimal order quantity?
There are two ways you can solve this problem: Method 1: If you remember the formula for total relevant cost, you can apply it directly 𝑇𝑅𝐶(𝑄∗)=2𝑆𝐻𝐷‾‾‾‾‾‾‾√=2×30×25×6,000‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾‾√=3,000TRC(Q∗)=2SHD=2×30×25×6,000=3,000 Method 2: Total relevant costs = annual ordering cost + annual holding cost. Annual ordering cost = S*(D/Q) = 30*(6,000/120) = $1,500 Annual holding cost = H*(Q/2) = 25*(120/2) = $1,500 Notice that annual ordering cost = annual holding cost. If you remember this property, you only need to calculate the annual ordering cost and then multiply that by 2, you get the total relevant costs.
In almost all countries, roads, seaports, airports, rail, and canals have what in common?
They were built and/or managed by the government.
Which transportation network design option establishes an extra layer between suppliers and retailers to store inventory and to serve as a transfer location?
Transshipment (Hub-and-Spoke) Network.
A milk run is a route in which a truck delivers products from a single supplier to multiple retail stores.
True
Transportation is a significant component of the costs incurred by most supply chains. It usually accounts for about 1/3 to 2/3 of the logistics costs.
True
Transportation plays a key role in every supply chain because products are rarely produced and consumed in the same location. Therefore, transportation is needed to move products from the place where they are produced to the place where they are consumed.
True
Which of the following transportation modes is appropriate for transporting grain?
Water
Demand for fasteners at Menards is 20,000 boxes per month. The holding rate at Menards is 20% per year. Each order incurs a fixed cost of $400. The supplier offers an all-unit discount pricing scheme with a price of $5 per box for orders under 30,000 and a price of $4.9 for all orders of 30,000 or more. (Round up your answers to a whole number)
What is the annual demand (D)? D= 240000 boxes What is the fixed cost (S)? S=$400 /order How many boxes should Menards order per replenishment? Q= 30000 boxes What is the optimal total annual cost (TC)? TC=$1193900
Based on the above North Face retail store question, the store manager implemented a new ordering system that reduces the fixed cost of a replenishment order from $30 to only $6. What is the new optimal order quantity?
When we try to solve a problem, think about what information we have and what information we need. Step 1. The information we have: Annual demand D=500*12=6,000 units/year Purchasing cost per unit C=$100/unit Fixed ordering cost per order S=$6/order Holding rate h = 25% Step 2. What information we need: We know the optimal order quantity, 𝑄=2𝑆𝐷ℎ𝐶‾‾‾‾√Q=2SDhC or 𝑄=2𝑆𝐷𝐻‾‾‾‾√Q=2SDHwhere H=hC. Based on the information we have, we can substitute S, D, h, C with the numbers in Step 1. 𝑄=2×6×6,00025%×100‾‾‾‾‾‾‾‾√=54
Suppose you are the manager of Kwik Trip #472, you know the average daily demand for Otis Spunkmeyer Chocolate Muffin is 57, but you have never sold exactly 57 in a day. Your sales could be as high as 80 and as low as 40. Which of the following statement is true?
Your demand forecast should be 57 plus an estimate of forecast error although you do not know how to calculate that yet.
The quantity of inventory that a stage of the supply chain either produces or purchases at a single time is
a lot or batch size.
Based on the above North Face retail store question, what is the average inventory if the store manager order at optimal order quantity?
average inventory = Q/2 = 120/2 = 60
The ease with which the customer can place and receive their order as well as other aspects of value that the sales staff provides is You Answered
customer experience
Cycle inventory is the amount of inventory a business needs to meet the expected customer demand between its replenishment cycles. Cycle inventory exists because producing or purchasing in large lots allows a stage of the supply chain to
exploit economies of scale and lower cost.
The costs incurred in bringing material into a facility are________; and the costs incurred in sending material out of a facility are_________.
inbound transportation cost; outbound transportation cost.
One nice property of the EOQ model is that it is pretty robust and insensitive to input errors. Suppose you are the inventory control manager for a large firm. At the annual planning session, you are setting the inventory policy for your major items. While doing this, you realize that it is difficult to accurately estimate the actual cost of placing an order. Therefore, to be on the safer side, you decide to set the actual order quantity at 25% more than the computed economic order quantity. By how much (in percentage) will the new Total Relevant Cost be different from the optimal Total Relevant Cost? (Give a rough estimate based on what you learned in class)
less than 8.3%
Cheaper modes of transport typically have
longer lead times and larger minimum shipment quantities
Based on the above North Face retail store question, how many orders are placed in a year if the store manager orders at the optimal order quantity?
number of orders per year = (D/Q) = (6,000/120) = 50
The steps in designing a supply chain
o Step 1: determine the number of stages in the supply chain and the role of each stage (e.g., if you are a manufacturer, you can think about whether to sell directly to end customers, or to sell through distributors or retailers) o Step 2: determine the locations, the number of facilities, and the capacity and the capability of the facilities
How to evaluate a supply chain network design?
o The value provided to the customer → what are possible values? o The cost of providing that value → what are possible costs?
The ability of the customer to track their order from placement to delivery is
order visibility
The probability of having a product in stock when a customer order arrives is
product availability
The amount of time it takes for a customer to receive their order is
response time
One of the characteristics (or properties) of forecasts is
shorter horizon forecasts are usually more accurate than longer horizon forecasts.
According to the lecture, why should we capture errors in our past forecasts?
so that we can estimate the error of future forecasts
The cost of carrying one unit in inventory for a specified period of time, usually one year, is referred to as
the holding cost and is denoted by H.
The price paid per unit is referred to as
the purchasing cost and is denoted by C
Which mode of transportation is the dominant form of domestic freight transportation?
truck
