Supply Chain Exam 2
Dependent demand and independent demand items differ in that
1. for any product, all components are dependent-demand items 2. the need for independent-demand items is forecast 3. the need for dependent-demand items is calculated
4 categories of inventory
1. raw materials 2. work in process: partially processed but not yet done 3. finished goods 4. maintenance, repair, and operating: used to make the inventory
The cost of a widget is $5, and the carrying rate is 40%; cost of processing an order is $25, annual demand is for 400 widgets, and supply and usage patterns are stable. What is the economic order quantity (EOQ)?
100
The revenue for a firm is $1,500,000. Its cost of revenue is $800,000 and its average inventory for the year is $50,000. What is the inventory turnover?
16 times
The UNLV 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 very stable at 9 days. Compute the statistical reorder point that results in a 95 percent in-stock probability (Z = 1.65).
199.8 units
In the absence of demand and delivery lead time variation, if demand is eight per day and purchase lead time is four days, the reorder point is:
32
Use this information below to calculate the optimal order quantity: Annual demand for backpacks is 43,000 units The cost to place an order is $220 The per unit cost of the item is $60.00 The annual holding rate is 37.5%
920 units
These are benefits of implementing what?? Allows organizations to more easily communicate information about operational changes to supply chain members Enables the company to utilize a single centralized database system, thus eliminating duplicate data entry.
ERP system
Dependent demand items are those parts whose demand is based on the demand of the final product in which the parts are used. Independent demand items are the end items consumers typically buy, and whose demand is affected by trends, seasonal patterns, and general market conditions. Service parts are also considered independent demand items. What are examples?
In the car industry: Dependent demand items: tires, battery, wheels, used to assemble the car Independent demand items: car, truck, service parts
Using an order quantity that is smaller than the economic order quantity will result in a slightly higher total ordering cost but a slightly smaller carrying cost. The net effect is a slightly higher total __________ ________.
Inventory costs
The process of converting a parent item's planned order releases into component gross requirements is referred to as the (ERP) or (MRP) explosion???
MRP
Quantitative Models (that ignore variations)
Naive Forecast: forgetting all the variations, just doing what you've been doing regardless SImple Moving Average Forecast: taking in consideration what's happened in the past and do the same Weighted Moving Average: provide weights and percentages to the previous months, these don't consider variations so theyre usually wrong or below actual demand, you must determind WHICH periods to use and how much to weigh them Linear Regression Model: finds slope of previous demand and calculate on Excel, gives you a place to start for forecast, before considering variations Cause and Effect Models: multiple independent varialbes used to make forecast, try to find the external variable that is the cause of your demand
Why is the total purchase price not a factor affecting the order quantity in the classic economic order quantity model?
Since there is no quantity discount, the purchase cost is constant regardless of the order quantity.
Benefits that can be achieved by implementing a successful CPFR program:
Strengthened partner/alliance relationships High-quality analysis of sales and order forecasts both upstream and downstream in the supply chain The ability to access and use accurate and timely data to improve forecast accuracy Demand change management with the ability to proactively eliminate problems before they appear Collaboration of future requirements and plans The integration of planning, forecasting, and logistics activities
EOQ formula
THE SQ ROOT OF [2(annual usage in units)(order cost)]/(annual carrying cost per unit)
the 2 major RFID standards
The Electronic Product Code (EPC) standard managed by the EPCglobal, Inc. and The 18000 standard of the International Organization for Standardization (ISO).
According to the textbook, which of the following is considered a reason that ERP implementations fail? a. The organization may lack the necessary workforce and expertise to properly implement the system b. Top management becomes overcommitted to the point where they constantly encourage the employees during implementation c. Organizations tend to spend too much time and money training their employees on the new system d. All of these
a. The organization may lack the necessary workforce and expertise to properly implement the system
Which of the following would most likely be considered a dependent demand item? a. bike tires used to make a bike b. tv c. couch d. lawn mower
a. bike tires
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 $750,000 this scenario would reveal that: Your fixed lot was: a. lower than the EOQ b. equal to the EOQ c. higher than the EOQ
a. lower than the EOQ
Which of the following indices provided by the Institute for Supply Management (ISM) is considered the most important by economists because it is a composite of five weighted, seasonally adjusted indices? a. purchasing manager's index b. expert orders index c. production and inventory index d. new orders index
a. purchasing manager's index
Which of the following is an engineering document that shows an inclusive listing of all the component parts and assemblies making up the final product? a. Master Production Schedule b. Bill of Materials c. Distribution requirement plan d. Resource Requirement Plan
b. Bill of Materials
Which of the following basic production strategies used for addressing the aggregate planning problem would work best with make-to-order manufacturing firms? a. Capacity Production Strategy b. Chase Production Strategy c. Level Production Strategy d. Backlog Production Strategy
b. Chase Production Strategy (producing only enough goods to meet the demand for goods)
ABC Inventory Control System
determines which inventory should and should not be restocked, match inventory to consumer demands/sales A, B, and C. A items are given highest priority, while C items have the lowest priority. Prioritization may be based on annual dollar usage, shelf life, or sales volume.
Forecast Error:
difference between actual quantity and what quantity you forecasted
Inventory's costs:
direct costs (labor) indirect costs (overhead) variable costs (labor, materials) order/setup costs (direct variable costs) holding/carrying costs (holding inventory costs)
Which of the following is NOT an assumption of the classic Economic Order Quantity (EOQ)? a. lead time is known and constant b. demand is known and constant c. instant replenishment d. there is no quantity discount e. the production rate must be greater than the consumption rate
e. the production rate must be greater than the consumption rate
T or F: An MRP system has a subassembly with a lot size of 100 units. In terms of filling future requirements, this would mean that planned order releases for the subassembly would always have to be exactly 100 units.
false
T or F: If you felt that recent demand trends were more significant, and thus should be emphasized more in formulating a forecast, then in forecasting demand for the upcoming demand period, you would probably favor using a simple moving average over the conventional weighted moving average.
false
T or F: If you were calculating a forecast using an exponential smoothing model, a calculation using α = 0.2 would be putting a greater emphasis on recent data, while a calculation using α = 0.8 would be putting a greater emphasis on past data. Thus a lower α is more responsive to changes in demand in the most recent periods.
false
t or f: Organizations that choose to discontinue use of old and inefficient computer and information systems in favor of adopting a modern ERP system are said to have implemented a decentralized database solution.
false
t or f: Service parts sold to the repair shops are examples of dependent demand.
false
t or f: The (s, S) continuous review inventory system orders the same quantity Q when physical inventory reaches the reorder points.
false
t or f: In the Economic Manufacturing Quantity model, the annual consumption rate must be higher than the annual production rate. and In the Economic Manufacturing Quantity model, average inventory is one-half of the economic manufacturing quantity.
false and false
T or F: The true value of CPFR comes from the sophisticated forecasting algorithms that provide companies with highly accurate forecasts, not from the exchange of forecasting information.
false it is from the sharing of forecast info
Inventory costs which are independent of the output quantity are called?
fixed costs
The EOQ model with quantity discounts attempts to determine
how many units should be ordered
Tracking signal is used to determine
if a forecasting model is stable over time and whether the forecasts are consistently over or under actual demand
If the actual order quantity is the economic order quantity in a problem that meets the assumptions of the model, the average amount of inventory on hand
is one-half of the economic order quantity
Which of the following is a disadvantage of excessive inventory?
it hides production and other problems
the lower the number, the _________ accurate it is
more
accurate forecasting provides:
reduced inventories, costs, stock outs, improves production plans and customer service
A typical ERP system attempts to tie together a variety of systems related to production and inventory planning, purchasing, logistics, human resources, finance, accounting, customer relationship management, and supplier relationship management by means of (single) or (multiple) centralized database
single
In the presence of demand and delivery lead time uncertainty, reorder point is the ____.
sum of demand during lead time and safety stock
Forecasts are important to match
supply with demand, pull market because based on the response from people to predict future
If a tracking signal is positive, ...
the actual value is higher than the forecast
In the quantity discount model, the optimum order quantity that minimizes annual total costs may exist at:
the economic order quantity and a price break point
Which of the following is not an example of an ordering cost for products purchased from a supplier?
the opportunity cost of not ordering from a least cost supplier
The primary purpose of the basic economic order quantity model is
to minimize the sum of setup cost and holding cost
Goal is to minimize error of forecast and be accurate
true
If a lot-size is fixed at 100 units that means orders must be in multiples of 100 units.
true
T or F: As tighter control limits are instituted for the tracking signal, there is a greater probability of finding exceptions that require no action, but it also means catching changes in demand earlier.
true
T or F: In the Delphi forecasting method, a group of internal and external experts are surveyed during several rounds in terms of future events and long-term forecasts of demand but the group members do not physically meet.
true
T or F: Some of the benefits of CPFR include strengthening partner relationships, providing an analysis of sales and order forecasts both upstream and downstream, and allowing collaboration on future requirements and planning.
true
T or F: Some of the important steps involved in implementation of a CPRF process model include developing a collaborative arrangement, creating a sales forecast, creating an order forecast, and generating those orders.
true
T or F: System nervousness is when even small changes to upper-level production plans cause major changes in lower-level production plans.
true
T or F: The resource and operations planning done by operations managers is intended to balance capacity and output.
true
T or F: The three basic production strategies for addressing the aggregate planning problem are the chase production strategy, the level production strategy, and the mixed production strategy.
true
t or f: An RFID reader does not require direct line of sight to read the information stored in an RFID tag.
true
t or f: If an order quantity is larger than the EOQ, the annual holding cost exceeds the annual ordering cost.
true
t or f: Key requirements to a successful ERP implementation include adequate computer support, accurate system inputs, and flexible business processes that can conform to the approaches used in the ERP software logic.
true
t or f: Relaxing the constant price assumption of the classic EOQ model results in the Quantity Discount model.
true
t or f: Relaxing the instantaneous replenishment assumption of the EOQ model results in the Economic Manufacturing Quantity model.
true
t or f: The ABC inventory matrix shows an ABC inventory classification based on annual usage on the vertical axis and an ABC inventory classification based on physical inventory on the horizontal axis.
true
t or f: The continuous review inventory system is more expensive to monitor compared to the periodic review inventory system.
true
t or f: The optimal order quantity for the quantity discount model may exist at a price breakpoint.
true
t or f: When demand and lead time are constant, reorder point is the demand during lead time.
true
Quantitative Models
uses Time Series models: components of time series: -Trend Variation; the long term trend at your business -Seasonal Variations; changes in specific times shows peaks and valleys, ex:) restaurants are busy at certain hours -Cyclical Variations; business cycles, recessions and expansions/economic swings -Random Variation; due to unexpected or unpredictable events (storms)
How to fix Bullwhip Effect
with CPFR. (collaborative planning, forecasting and replenishment) = a business plan combining intelligence of multiple trading partners, share forecasts
The Single Integrator Solution
would utilize all the desired applications from a single vendor.
Formula for forecast error =
(actual demand for period) minus (the forecasted demand for the period)
The exponential smoothing forecast has the same value as the naïve forecast when α in the exponential smoothing model is equal to:
1
2 ways of Measuring inventory
1. Absolute value of inventory aka actual number of inventory 2. inventory turnover inventory turnover= cost of revenue/average inventory
2 functions of inventory
1. Buffer uncertainty in the market 2. Decouple dependencies in the supply chain (safety stock)
How to find the mean absolute deviation (MAD)?
1. Find the errors between forecast and real 2. Take absolute values of them and find the mean of those
Qualitative Models
1. Jury of Exec Opinion: educated group comes up with forecast 2. Delphi Method: internal AND external experts get together 3. Sales Force Composite: utilizes knowledge of the sales force 4. Consumer Survey: survey given to customers to determine forecast
Measures of Forecast Accuracy
1. Mean Absolute Deviation (MAD): identify how far off in absolute terms ex:) 100 units 2. Mean Absolute % Error (MAPE): error by percentage ex:) 10% off 3. Mean Squared: exponentially shows the impact of large numbers 4. Running Sum of Forecast Error (RSFE): shows the bias or tendency of forecast to be higher or lower than actual demand 5. Tracking Signal: shows how much of a bias you have
Qualitative models are used when...
1. New product introduction 2. Entering a new market 3. Expand into new usage 4. When numbers are unavailable for quantitative methods, use qualitative until numbers are available -Sometimes qualitative can be bias
How to find the mean squared error (MSE)?
1. Square the errors 2. Find the mean of the sum of the squared errors
How to find the MAPE?
1. absolute value divided by the actual 2. multiply that by 100 to get the percentage
Items appearing along the diagonal of the matrix suggest inventory matches sales. Items in the top left triangle indicate under-stocked A and B items, where as items in the lower right triangle suggest overstocked B and C items, or obsolete stocks.
ABC inventory matrix
CPFR
Collaborative planning, forecasting and replenishment
Exponential Smoothing Method
F(t) = F(t-1) + α[A(t-1)-F(t-1)] where F(t) = new forecast f(t-1) = previous period forecast α = smoothing/weighting constant A(t-1) = previous period actual demand
The Economic Order Quantity (EOQ) is the optimal order size because it minimizes annual inventory holding cost.
FALSE The EOQ is the lot size where inventory holding costs equal annual ordering costs, minimizes the annual total INVENTORY cost
Best of Breed Solution not the Single Integrator Solution (opposite)
Organizations that choose to implement the best applications or modules for each of the different functional departments associated with the supply chain versus choosing to implement one single system with all of the desired applications from a single vendor is said to have chosen a(n):
Forecasting Techniques
Qualitative: based on using macro econ data, opinion, intuition Quantitative: uses math models and historical data to predict, uses time series models (what you sell in the past is a good indicator of what you will sell in the future) and Cause and Effect models: find causes of a demand and forecast on estimation of cause
The Bullwhip Effect
a small change on one end leads to a huge change on the other end when there is lack of communication
What inventory factor may be omitted from the basic EOQ derivation because it is a constant? a. annual order processing cost b. annual purchase cost of goods c. annual capital cost d. annual setup costs e. all of these
b. annual purchase cost of goods
If an item is ordered at its economic order quantity, the annual carrying cost should be: a. slightly less than the annual ordering cost b. equal to the annual ordering cost c. twice the annual purchase price d. the square root of the annual purchase cost e. can't be determined
b. equal to the annual purchase price
Companies hold a supply of inventory for all of the following reasons EXCEPT: a. meet variation in product demand b. increase production change/setup costs c. allow production scheduling flexibility d. purchase in bulk to take advantage of quantity discounts e. maintain independence of operations (decoupling)
b. increase production change/setup costs
According to the textbook, which of the following is NOT a way to closely match supply and demand? a. holding high amounts of inventory b. maintaining a rigid pricing system c. utilizing overtime d. hiring temporary workers
b. maintaining a rigid pricing system
Inventory
biggest asset of a company, must be secured and tracked, management must reduce inventory levels but meet customer expectations
Which of the following is NOT one of the three basic methods used to calculate the available-to-promise quantities? a.Discrete available-to-promise b.Cumulative available-to-promise without looking ahead c.Indiscrete available-to-promise d. Cumulative available-to-promise with looking ahead
c. Indiscrete available to promise
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? a. RRP b. MPS c. RCCP d. MRP
d. MRP
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: a. Customer Relationship Management and human resource management b. Human Resource Management and accounting and finance c. Supplier Relationship Management and Customer relationship management d. All of the above
d. all of the above
If usage is constant, as order size increases, annual order costs ____ but annual carrying costs ____. a. increase, increase b. decrease, decrease c. increase, decrease d. decrease, increase e. remain same
d. decrease, increase
Which is NOT a type of qualitative forecasting? a. sales force composite b. consumer survey c. jury of executive opinion d. naive method
d. naive method is quantitative
Which of the following is not an assumption of the economic order quantity model? a. demand is known, constant, and independent b. lead time is known and constant c. quantity discounts are not possible d. production and use can occur at the same time e. the only variable costs are setup costs and holding costs
d. production and use can occur at the same time
Which of the following cannot be considered as independent demand items? a. wholesale and retail merchandise items b. maintenance, repair, and operating supplies at a manufacturing company c. maintenance, repair, and operating supplies at a service firm d. raw material items that become part of the final product at a firm e. service industry items such as hospital supplies
d. raw material items that become part of the final product at a firm
According to textbook, the top three challenges for CPFR implementation include all of the following except: a. Making organizational and procedural changes b. Trust between supply chain partners c. cost d. supplier lead times
d. supplier lead times
In the absence of demand and delivery lead time uncertainty, reorder point is the ____.
demand during lead time