Supply Chain Management, Ch. 1-4, Exam 1
Average inventory last year was $200,000 and turns were 6. What was the cost of goods sold last year? - $1,200,000 - $1,120,000 - $11,200,000 - $33,333
$1,200,000 (200,000 x 6 = 1,200,000)
Imagine a customer is looking for a giant specialty candy bar in a store but it is not on the shelf. Suppose that the retail margin on the candy bar is $5 and that 27% of the customers forgo having the candy bar but the other 73% switch to another brand. Suppose that the margin the retailer makes on this brand is also $5 per unit. Then the cost of a stock-out per unit of lost sale to the retailer is ____. - $3.00 - $1.35 - $3.65 - $1.50
$1.35 ($5 x 0.27 = $1.35)
The inventory holding cost factor is 25% and the average inventory next year is expected to be $185,000. What is the expected inventory holding cost? - $4,625,000 - $740,000 - $46,250 - $7,400 - Not enough information to determine
$46,250 (185,000 x 0.25 = 46,250)
In an exponential smoothing model, alpha can take on any value between ______. - -1 and 0 - 0 and 1 - 0 and 10 - -1 and 1
0 and 1
Imagine you are a small format grocer and that on average you sell 80 berries per day. Some days you sell more and some days you sell less, but on average you sell 80. In fact, you have been doing this for a while and have calculated the probability of selling different quantities of berries, reproduced in the table of discrete probabilities below. Quantity sold | Probability 62 0.10 71 0.20 80 0.40 89 0.20 98 0.10 You have decided to stock fewer berries and instead stock more grapes. You decided to stock 89 berries each day. About how many sales of berries do you expect to lose each day as a result of this decision to stock more grapes? - 0.90 - 1.20 - 2.00 - 3.60
0.90 (89 - 80 = 9 = 0.9???)
According to the textbook, the order for steps of (S&OP) Sales and Operations Planning process is?
1. Generate aggregate demand forecast 2. Modify forecast with demand intelligence 3. Create a consensus forecast 4. Create "rough cut" capacity plan 5. Execute at individual item (SKU) level against demand 6. Measure performance
Consider the following analysis for four SKUs in a product category. Which is the best estimate of the turns of the category as a whole? SKU Annual Sales Average Inventory Inventory Turns SKU 1 1500 150 14.29 SKU 2 18200 10500 1.73 SKU 3 18200 10500 1.73 SKU 4 18200 10500 1.73 56100 31605 - 1.78 - 4.87 - 25.65 - 7.86
1.78 (Total sales / total inventory = 56,100 / 31,605 = 1.775 = 1.78)
Justin's Plumbing Supply operates 365 days a year. Annual inventory turns of faucets is 9. How many days of supply does that represent? - 41 - 37 - 52 - 46 - 90
41 (365 / 9 = 40.55 = 41)
Assume an item has a demand of 1 per day and a demand of 3 every 7th day. However, the item is out of stock every 7th day. What would be the item fill rate (IFR). - 71% - 34% - 40% - 67%
67% (divide the amount of work or product a supplier has provided by the total amount of work or product necessary) [(1+1+1+1+1+1)/9 = 0.66666 = 67%]
William's Bakery bakes sweet rolls for 80 local supermarkets and sells them through the supermarkets on a consignment basis, which means he only gets paid for the sweet rolls that sell. He destroys sweet rolls that don't sell. People in this city love his sweet rolls. He estimates a daily demand of 7,000 sweet rolls with a standard deviation of 700 sweet rolls. Suppose he wants to achieve a service level of 80%. How many sweet rolls should he produce? Hint: Use the Excel function NORMINV(service level, mean, standard deviation). - 7,589 - 7,989 - 7,389 - 7,789
7,589
David's Bakery bakes cinnamon rolls for 90 local supermarkets and sells them through the supermarkets on a consignment basis, which means he only gets paid for the cinnamon rolls that sell. He destroys cinnamon rolls that don't sell. People in this city love his cinnamon rolls He estimates a daily demand of 8,000 cinnamon rolls with a standard deviation of 800 cinnamon rolls. Suppose he produces 8,702 cinnamon rolls. Using the Excel formula NORMDIST (level of production, mean, standard deviation, 1), calculate the expected service level or percentage time in stock. - 86% - 76% - 78% - 81%
81%
A distribution center has 120,000 pounds of rock salt and the forecast is 1,400 pounds of rock salt per day. What is the estimate of the days of supply? - 2,000 - 86 - 20,000 - 96
86 (120,000 / 1,400 = 85.7 = 86)
Given a sample of weekly sales data of 8, 10, 6, and 12, what is the four-period moving average sales forecast for the next week? - 8 - 10 - 9 - 36
9 [(8 + 10 + 6 + 12) / 4 = 9]
Jennifer's Bakery bakes donuts for 160 local supermarkets and sells them through the supermarkets on a consignment basis, which means she only gets paid for the donuts that sell. She destroys donuts that don't sell. People in this city love her donuts. The total delivered cost of donuts is $0.80 per unit and she sells it to retailers for $8.00. Given this information, calculate the optimal service level. - 86% - 90% - 93% - 88%
90% (Marginal benefit (MB)= Price - Cost = $8-$0.80 = $7.20; Marginal cost (MC)= Cost - Salvage value = $0.80-$0 = $0.80; Service level = MB / (MB + MC) = 7.20 / (7.20 + 0.80) = 0.90)
Globalization of production has led to _________. - Extended supply chains - Uncertainty in supply - Uncertainty in demand - A & b - A, b, & c
A & b, Extended supply chains and uncertainty in supply SUPPLY AND SUPPLY
Noise is random variation in demand that ____________. - Cannot be explained - Are explained by seasonality - Are explained by trend - Can be explained
Cannot be explained
Some measures of forecast accuracy include the running sum of forecast errors, the mean absolute percentage error, and mean forecast error. The formula for each is dependent on the forecast error, which is calculated by using the equation: - Actual demand for period t plus the forecasted demand for period t - Actual demand for period t minus the forecasted demand for period t - Actual demand for period t divided by the forecasted demand for period t - The average of actual demand for period t and forecasted demand for period t
Actual demand for period t minus the forecasted demand for period t (Forecast error = Actual demand for period t - Forecasted demand for period t)
If you wanted to assess inventory turns of a category with multiple SKUs, the best way to do that would be to ____________. (SKU- stock keeping unit) - Just take the average of the inventory turns for the SKUs in the category - Just take the sum of the inventory turns for the SKUs in the category - Add up the unit sales for the category and divide by the total inventory level for the category - Average the sales for the category and divide by the average inventory level for the category
Add up the unit sales for the category and divide by the total inventory level for the category
Firms that practice S&OP with discipline are likely to experience higher levels of ________ relative to firms with weak undisciplined implementation. - Fill rates - Gross margin - Customer retention - All of the above
All of the above
In general, forecasters must consider which of the following? - Trend - Seasonality - Noise - Promotional activity - All of the above
All of the above
Which of the following metrics can be used in evaluating SKU inventory performance? - Inventory turns - GMROI - Periods of supply - All of the above
All of the above
A leveling of production costs between China, Mexico, and the United States means that U.S. firms will increasingly focus on _____________ to be competitive - Agility - Responsiveness - Flexibility - All of these - None of these
All of these
GMROI ____________. - Measures the performance of inventory - Is the Gross Margin Return On Inventory Investment -Includes gross margin in the calculation - None of these - All of these
All of these
The secondary effect of an increase in inventory may be an increase in ROA if the increase in inventory causes an increase in sales and profit. The increase in the sales and profit could be a result of which of the following? - Fewer stock outs - Fewer lost sales - Increase in sales of impulse items with inventory dependent demand - All of these
All of these
Logistics costs include which of the following? - Inventory holding costs -Transportation costs - Warehousing costs - Material handling costs - All of these and more
All of these and more
An organization has developed three alternate sales and operations plans for the coming six months and now must choose between them. They should consider: - What the cash flows are like - How their plan will impact supply chain partners - How flexible the plan is - All of these are good criteria for a sales and operation plan
All of these are good criteria for a sales and operation plan
When a shopped in a retail store encounters an out-of-stock, there are a number of reactions that are possible. Which of the following are options discussed in this lesson? - Switch to another size, flavor, or type within the same brand - Switch to another brand - Switch to another category but same product type - All of these are options - None of these are options
All of these are options
Which of the following benefits did Walmart achieve from their early network design strategy? - Reduction in safety stock at the stores - Reduction in in-transit stock to the stores - Lower cost per store for the DCs to serve the store - Reduction in transportation costs from the DC to the store - All of these were benefits
All of these were benefits
ROA is profit divided by _______________. - Revenue - Other revenue - Net worth - Assets - Liabilities
Assets (The higher the ROA, the better the management)
You can estimate the mean by taking the ________. - Standard deviation - Average - Variance - None of these
Average
Economies of scale is defined as a reduction in ________ when volumes are increased. - Supply chain - Demand - Average cost per unit - Inventory
Average cost per unit
The RSFE (running sum of forecast error) and MFE (mean forecast error) are used to measure ________ in forecast error. - Bias - Standard deviation - Magnitude - Error
Bias
An increase in transportation costs can have a secondary effect on ROA that actually increases ROA. This can happen if the additional spending on transportation ___________. - Results in a shorter lead time that increases profit by enough to offset the increase in transportation costs - Results in a shorter lead time that decreases inventory costs by enough to offset the reduction in profit as a result of more expensive transportation. - Both of these - Neither of these
Both of these
A forecast is known to be unbiased. The magnitude must then _________. - Have a large magnitude of error - Have zero magnitude of error - Cannot tell what magnitude would be from the bias - Have a low magnitude of error
Cannot tell what magnitude would be from the bias
Market research is a _____________ kind of forecasting method - Quantitative - Time series - Causal - Qualitative
Causal (relating to or acting as a cause)
Two major classifications of quantitative forecasting methods are _______ and ________ models. - Time series; qualitative - Quantitative; iterative - Causal; time series - Causal; iterative
Causal; time series
Responsiveness in the 4 R's of supply chain competition is defined as being able to ________. - Acknowledge problems quickly - Change logistics and supply chain management activities quickly - Deliver products to customers that are demanding it - None of these
Change logistics and SCM activities quickly
A key output of a S&OP process is a ______________ forecast.
Consensus
This question is part of what S&OP process: "If there were no constraints from the supply side, what could we actually sell?" - Supply review - Demand review - Executive review - Consensus - Preparation
Demand review
Suppose a company orders 10 pallets of bottled water, 14 oz. per bottle, and $0.05 per bottle. There are 2,000 bottles per pallet. Suppose they use a truckload carrier and it costs a flat rate of $1,000 for the transportation. So the purchase cost is $0.05 per bottle X 2,000 bottles per pallet X 10 pallets = $1,000. So the purchase cost plus the transportation cost is $2,000, hence, the total cost per bottle is $2,000 / 20,000 bottles = $0.10 per bottle. In this example, the company only ordered 10 pallets but a truck load has a capacity of about 20 pallets of bottled water. Instead, suppose they ordered 20 pallets of bottled water, the transportation cost will be the same but the purchase cost will now be $0.05 per bottle X 2,000 bottles per pallet X 20 pallets = $2,000. Hence the purchase cost plus the transportation cost is $3,000, so the total cost per bottle is $3,000 / 40,000 bottles ≈ $0.08 per bottle (rounded up from $0.075 per bottle). This demonstrates which of the following concepts?
Economies of scale
One approach to estimating the cost of a stock-out per unit of lost sale is to calculate an estimate of the ________. - Probability - Expected value - Internal rate of return - Net present value - None of these
Expected value
Adjusting last period's forecast by a fraction of last period's forecast error is called _______. - Moving average - Exponential smoothing - Mean forecast error - Mean square error
Exponential smoothing
The % of demand fulfilled from on hand inventory is called ________. - GMROI (gross margin return on investment) - Fill rate - ROA (return on assets) - Stock out
Fill rate
Logistics lead time is the time ___________________. - From when an order is placed until its actually received and ready for use or sale - That a customer is willing to wait for delivery of an anticipated purchase - From when an order is manufactured until it's in the customers hands - All of these
From when an order is placed until its actually received and ready for use or sale
If the RSFE or MFE is negative, then on average the forecasts are too ______. - High - Low
High
A __________ alpha in exponential smoothing is like having a moving average with very few periods. A ____alpha in exponential smoothing is having lots of periods in a moving average. - Low; high - High; low - High; high - Low; low
High; low
Which of the following is a theme throughout this course?
How logistics and supply chain management can be used to create a competitive advantage
As the planning horizon increases, forecast error is expected to ____________. - Go towards zero - Decrease - Increase - Be about the same
Increase
The direct effect of an increase in the number of distribution centers is to _______ assets which reduces ROA. - Decrease - Minimize - Stabilize - Increase
Increase (DCs are assets, so increasing the number of DCs will increase assets)
To make a weighted moving average forecast model less responsive, the forecaster should ____________. - Use a lower alpha - Increase the number of periods included - Decrease the number of periods included - Place higher weight on more recent periods
Increase the number of periods included
As supply chains become longer, supply uncertainty __________. - Increases - Decreases - Stays the same
Increases
As the number of periods included in a moving average forecast model _______, the forecast becomes ___________ stable. - Increases; less - Increases; more - Decreases; more
Increases; more
Causal forecasting methods estimate the effects of _________ on _________ to forecast future demand. - Independent variables; dependent variables - The past; the future - Expert judgment; demand data - dependent variables; independent variables
Independent variables; dependent variables
Perpetual inventory is:
Initial inventory + Amount received - amount sold
Supply chain management is the management of the _______ of business processes between functions in a firm and with suppliers and customers
Integration
The Delphi method is a(n) _____________ method of forecasting. - Iterative - Quantitative - Non-iterative - Causal
Iterative (repetitive)
Bob is really good at forecasting demand for televisions, but he couldn't tell you how he does it, exactly. The _______ method would be a good approach for helping Bob quantify his method. - Polling - Judgement capturing - Dephi - Crowd-source
Judgement capturing
When there is too much noise in the data, the only component of demand that can be estimated is the ____________ of demand. - Seasonality - Level - Trend - Cyclicality
Level
Which component of demand represents the demand that would likely exist without the existence of either trend or seasonality? - Noise - Level - Promotions - Cyclicality
Level
The objective of Walmart's early network design strategy was to:
Locate stores close to a distribution center
Procurement time, manufacturing time and delivery time are components of _______. - Lead time gap - Policy capturing - Logistics lead time - Moving average
Logistics lead time (TIME TIME TIME TIME)
MAPE (mean absolute percent error) is used to measure forecast error _______. - Bias - Magnitude - Safety shock - Both a & b
Magnitude
The fundamental purpose of an S&OP (sales and operation planning) process is to: - Refine the sales forecast - Match supply and demand - Reduce inventory - Eliminate lost sales
Match supply and demand
A CPFR program allows a producer to determine replenishment quantities in concert with a retailer and thereby remove redundant inventory and improve customer service. This activity likely ______________. - Worsens the bullwhip effect - Mitigates the bullwhip effect - Has no effect on the BE - None of the above
Mitigates the bullwhip effect
Assume the two SKUs have the same MAPE. However, SKU A has a higher standard deviation of forecast error than SKU B. All other things being equal, we would carry ______ safety stock for SKU A. - Less - More - The same
More
One of the simplest time series models used for forecasting is ____________. - Trend adjusted exponential smoothing - Weighted moving average - Exponential smoothing - Moving average
Moving average
Which forecasting method places equal weight on past observations? - Weighted moving average - Moving average - Exponential smoothing - Causal
Moving average
When the forecast is too high, the forecast error is _______. - Positive - Negative
Negative
For the normal distribution, about 68% of the observations are within +/- 1 standard deviation of the mean, 95% within +/- 2 standard deviations, and about ________ within +/- 3 standard deviations. - 83% - 84% - 85% - 86% - None of these
None of these
Perpetual inventory is one of the major ways that ______________ and percentage of items in stock are measured. - Percentage of time in stock - Item fill rate - Standard deviation - None of these
Percentage of time in stock
Which of the following metrics tells you how many periods it will take to sell through your inventory on hand? - Inventory turns - GMROI - Periods of supply - All of the above
Periods of supply
________________ is when a retailer thinks there is more inventory than there actually is. - Item fill rate - Estimated inventory - Phantom inventory - Inaccurate inventory
Phantom inventory
Based on the table below, which product's forecast indicates the lowest magnitude of forecast error? Product Mean Absolute Percent Error (MAPE) Mean Forecast Error (MFE) A 11% 220 B 13% 210 C 23% 405 D 24% 500
Product A (lowest MAPE)
Which of the following products would you expect to require the most safety stock? - Product A: Standard Deviation of Sales = 18, Standard Deviation of Lead Time = 23 - Product B: Standard Deviation of Sales = 20, Standard Deviation of Lead time - 20 -Product C: Standard Deviation of Sales = 30, Standard Deviation of Lead Time = 31 - Product D: Standard Deviation of Sales = 29, Standard Deviation of Lead Time = 15
Product C (had the highest numbers)
Based on the table below, which product's forecast is the least biased? Product Mean Absolute Percent Error (MAPE) Mean Forecast Error (MFE) Standard Deviation of Forecast Error A 16% 600 64,700 B 18% 525 54,817 C 20% 395 43,466 D 5% 400 42,281
Product C (lowest MFE)
GMROI formula:
Profit / Inventory
A purpose of the consensus meeting is to _________. - Gather demand assumptions - Quantify the gap between supply and demand - Align the sales and demand planning forecast - Make a decision about how to proceed
Quantify the gap between supply and demand
Time series forecasting approaches are primarily _________ methods - Quantitative - Intuitive - Qualitative - Causal
Quantitative
As alpha is increased in an exponential smoothing model, the forecast becomes more ______. - Random - Accurate - Reactive - Stable
Reactive
One of the fundamental challenges faced by supply chain managers is the gap created when the customer's order cycle is ___________ than the total lead time. - Longer than - The same - Shorter than
Shorter than
Which of the following are measures of reliability of a logistics process? - Mean - Standard deviation - Coefficient of variation - Standard deviation and Coefficient of variation - Median
Standard deviation and coefficient of variation
Which forecast error metric is used in the traditional calculation of safety stock in automated systems? - Mean forecast error (MFE) - Standard deviation of forecast error - Running sum of forecast error (RSFE) - Mean absolute percent error (MAPE)
Standard deviation of forecast error
CPFR (collaborative planning, forecasting and replenishment) is a process to integrate the forecasting and replenishment activities between ______ and ________. - Suppliers; retailers - Demand; supply - Sales; demand assumptions - Sales; demand forecasting
Suppliers; retailers
What does a customer service level mean? - How happy the customers are - How many items a customer purchases - The amount of demand you can fulfill - The amount of supply you can accommodate
The amount of demand you can fulfill
If store perpetual inventory is greater than zero for 70 of the 100 SKUs in a category, then: - The calculated item fill rate is 30% (assuming perpetual inventory is accurate) - The calculated percentage of items in stock is 30% (assuming PI is accurate) - The calculated percentage of items in stock is 70% ( "" ) - The calculated percentage of time in stock is 30% ( "" ) - The calculated item fill rate is 70% ( "" )
The calculated percentage of items in stock is 70%
If store perpetual inventory is greater than zero for 65 days of the 100 days checked for a particular item in a category, then: - The calculated percentage of items is 35% (assuming perpetual inventory is accurate) - The calculated item fill rate is 65% (assuming perpetual inventory is accurate) -The calculated item fill rate is 35% (assuming perpetual inventory is accurate) - The calculated percentage of time in stock is 65% (assuming perpetual inventory is accurate) - The calculated percentage of time in stock is 35% (assuming perpetual inventory is accurate)
The calculated percentage of time in stock is 65% (assuming perpetual inventory is accurate)
You want to compute an optimal service level for stocking inventory. The correct formula is: - The cost of not having enough per unit, divided by the sum of the cost of having too much and the cost of not having enough - The cost of having too much, divided by the sum of the cost of having too much and not having enough - Neither of these - Either of these will do
The cost of not having enough per unit, divided by the sum of the cost of having too much and the cost of not having enough-- "PER UNIT" IS THE DIFFERENCE [Cost of not having enough per unit/ (Cost of having too much + Cost of not having enough)]
Safety stock is __________. - The expected number of units on hand just before a replenishment is received and available for use or sale - The standard deviation of the number of units on hand just before a replenishment is received and available for use or sale - The coefficient of variation of the number of units on hand just before a replenishment is received and available for use or sale - None of these
The expected number of units on hand just before a replenishment is received and available for use or sale
The difference between the logistics lead time and the customers' order cycle is called: - Manufacturing lead time - The lead time gap - Weighted moving average - Moving average
The lead time gap
Retail shelf is very expensive because _______________. - It takes a lot of time to put products on the shelf - The shelf is expensive - The land is expensive - The opportunity cost of alternate products
The opportunity cost of alternate products
Process improvement is concerned with increasing the speed of the process, reducing the cost of the process, or increasing the reliability of the process, without changing ____________.
The order of the activities
In pantry loading, the rate of consumption is ___________, but the frequency of purchase is reduced. - More - Less - The same - None of the above
The same
The term ________ today refers to a firm that supplies logistics and possibly other supply chain management services.
Third-party logistics (3PL) providers
_____________ is the idea that there are many other costs than just the acquisition cost that should be accounted for in a purchase. - Supply chain optimal cost - Sum of irrelevant costs - Landed cost of logistics - Total cost of ownership
Total cost of ownership
The ___________ component of customer service includes common metrics of customer service such as percentage of items in stock, percentage of time an item is in stock, fill rate, lead time, et cetera. - Pre-transaction - Transaction - Post-transaction - Mid-transaction
Transaction
Which component of demand represents the degree to which the data is increasing or decreasing over time? - Promotions - Noise - Level - Trend
Trend
When calculating inventory turns, it is acceptable to use _______ in the numerator and ______________ in the denominator. - Unit sales; Average unit inventory - Cost of goods sold; Average inventory cost - Sales; COGS - Unit sales; Average unit inventory & COGS; Average inventory cost - All of these
Unit sales; Average unit inventory & COGS; Average inventory cost
Inventory turns is ________ divided by __________. - Inventory; unit sales - Inventory; profit - Inventory; assets - Unit sales; average inventory
Unit sales; average inventory (Inventory turns = Unit sales/ average inventory)
Which of the following formulas calculate annual inventory turns? - Units sold in a year / Average number of units in inventory - Cost of goods sold x Value of inventory - Units sold in a year / COGS - None of these
Units sold in a year / Average number of units in inventory
A store manager says: "I shoot for a 95% service level." What the manager means is that: - She wants no more than 5% of products to be returned to the store - When the customer wants a product, she wants it to be there at least 95% of the time - She wants 95% of customers to have a pleasant experience at the store - All of these are correct - None of these are correct
When the customer wants a product, she wants it to be there at least 95% of the time
