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SCM 403 Final
Terms in this set (97)
Define expected Fill Rate and Service Level?
Fill Rate- the fraction of the percentage of customer demand that is met through immediate stock availability. This is the probability that a customer is able to purchase a unit.
Service Level- the probability of not hitting a stock-out. This is the probability that the firm has stock available for every customer. We can think of service level as the probability that all demand is satisfied.
The fill rate performance measure in an inventory system is always lower than the service level or in-stock probability performance measure. TRUE or FALSE?
(Rule of thumb: The resulting fill rate for a product will be higher than the cycle service level, except at 100%, the fill rate becomes equal the service level)
Which quantity CANNOT be altered by the Newsvendor order quantity?
Which types of costs are accounted for in an EOQ model?
1) The cost of the units themselves
2) The cost of holding units in inventory
3) The fixed order (or manufacturing set-up) cost.
Of the 3 types of costs that a EOQ model deals with, which one accounts for the risk of shrinkage( the units may be lost or stolen) and obsolescence (Units become useless while sitting in inventory)?
How do we generally represent holding cost?
Percentage of the Cost of the Goods
What is the purpose of calculating the Reorder Point?
Allows us to determine the safety stock (SS) needed to achieve a certain cycle service level. In general the longer the lead times are, and the greater the variability of demand and lead times, the MORE SS we will need.
A retail store that carries twice the inventory as it's competitor will provide twice the customer service level. TRUE or FALSE?
The objective of Inventory Management is only to minimize the cost of holding inventory. TRUE or FALSE?
The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable. TRUE or FALSE?
The difference(s) between the Newsvendor model and the Order up-to model is/are:
1)In the Newsvendor model the inventory gets obsolete after one period
2)The number of replenishments in the Order up to model are unlimited.
To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds, two fundamental decisions must be made about inventory: the TIMING and SIZE of the orders. TRUE or FALSE?
EOQ inventory models are basically concerned with the TIMING of orders. TRUE or FALSE?
What is not an assumption of the basic fixed-order quantity inventory model?
Diminishing returns to scale of holding inventory
The average inventory level and the number of orders per year are inversely related: As one INCREASES the other DECREASES. TRUE or FALSE?
Carrying cost is a function of order size; the larger the order, the higher the inventory carrying cost. TRUE or FALSE?
Annual ordering cost is inversely related to the order size. TRUE or FALSE?
EOQ models are often quiet robust. TRUE or FALSE?
For inventory systems with constant demand and a fixed lead time, which one is true?
The Reorder point = lead time demand
For a given fill rate, the expected inventory is higher in a system with lower variability compared to a system with higher variability when everything else is the same. TRUE or FALSE?
When demand is stable, increasing the lot size ordered will increase the amount of cycle inventory. TRUE or FALSE?
What are the 2 things that will improve cycle service level?
1) Decrease Variability
2) Increase Reorder Point
When you delay some customization until it is closer to the end is known as what?
It is possible that for some product the fill rate could be 99% but the CSL could be 0%. TRUE or FALSE?
Which of the following purposes does a warehouse serve?
In inventory models, if you have high Holding Costs the model would tend to favor high inventory levels. TRUE or FALSE?
The Newsvendor model, with minor modifications, can be used to manage the inventory of repairable service parts. TRUE or FALSE?
Which probability distribution that can reliably model product failure?
What are the definitions of Inventory level and Inventory position?
1) Inventory Level= On hand- Back order
2) Inventory position= On hand+ On order- Back order
Inventory position can never be negative. TRUE or FALSE?
Inventory position can be lower than inventory level. TRUE or FALSE? Explain why?
False. Inventory position can never be lower than inventory level, because on-order can never be negative.
What is Order-up to level?
The maximum inventory position we are willing to have
The order quantity in each period exactly equals the demand in the previous period in the order up to inventory model. TRUE or FALSE?
The cycle service level measures the quantity of shortage. TRUE or FALSE?
False. CSL measures whether there will be a shortage or not. It does not measure the amount of shortage.
What is the definition of expected lost sales? What does it measure?
Expected Lost sales- The expected number of units by which demand exceeds the order quantity.
It is a performance measure of how much sale we might lose.
Expected Lost sales does not depend on the variability of demand. TRUE or FALSE?
Expected sales can exceed expected demand. TRUE or FALSE?
What is the definition of expected left over inventory? Can it be negative?
Expected left over inventory- The average amount that demand is less than the order quantity.
It cannot be negative, it can only be 0 or positive.
Expected Lost sales and expected left over inventory can both be positive. TRUE or FALSE?
In Newsvendor model, if the underage cost is greater than overage cost, profit maximizing quantity is more than expected demand. TRUE or FALSE?
When we combine normal distributions, the variance of the combined distribution is square root of sum of variance of individual distributions. TRUE or FALSE?
(The variance of the combined distribution is the sum of variance of individual distributions)
What are the 3 elements of customer service?
Inventory turnover is not a measure of performance measure of customer service. TRUE or FALSE?
It is easier to predict demand of each variety of products, when there is large variety of products on offer. TRUE or FALSE?
Opportunity cost of not ordering from a least cost supplier is not a part of ordering cost. TRUE or FALSE?
The layout (or design) of a warehouse often plays a key role in determining labor productivity within that warehouse. TRUE or FALSE?
Firms keep supplies of inventory for what reason?
To meet variation of product demand
We use normal distribution to describe a random variable that takes only two values 0 or 1. Is it okay?
No. We should use binomial distribution instead
The fixed order quantity model is more appropriate for important items such as critical repair parts because there is closer monitoring and therefore quicker response to a potential stock out?
The weekly demand for notebook computers at the local best buy stores follows a normal distribution with a mean of 500 and a STD Dev of 100. What is the chance of a stock out during a month when 720 units were stocked?
The design of after-sales service supply chain is typically based on how variable demand is. TRUE or FALSE?
In Newsvendor model, the profit maximizing quantity is given by the in-stock probability equal to critical ratio?
Safety stock can be defined as the amount of inventory carried in addition to the expected (or average) demand. TRUE or FALSE?
Reducing lead-time reduces the expected on-hand inventory, especially when the required fill rate is high. TRUE or FALSE?
The on-order inventory in a base stock policy system is found by multiplying the lead-time with the average of the demand over L+T periods. TRUE or FALSE?
Inventory is required if a firm is to realize economies of scale in purchasing, transportation, and/ or manufacturing. TRUE or FALSE?
For ordering the single replenishment of a fashion product over a single time period a profit-maximizing inventory manager should always order more than the average of the forecasted demand distribution. TRUE or FALSE?
The expected back orders in an order-up to model with lead time (L) and review period (T) can simply be obtained by finding the expected loss sales of a Newsvendor model whose demand is identical to the L+T+1 period demand of the order up-to model and whose order quantity is the base stock level(S). TRUE or FALSE?
In forecasting, the SKU level forecasts are often less accurate than the aggregate level forecasts. TRUE or FALSE?
If it takes a supplier 4 days to deliver an order once it has been placed and the STD dev of daily demand is 10, what is the STD dev of usage during lead time?
We can use the Newsvendor model to manage the inventory of items with fixed and known demand. TRUE or FALSE?
More Inventory is needed as demand uncertainty increases for fixed fill rate. TRUE or FALSE?
Reducing the lead time reduces the expected inventory, especially as the target fill rate increases. TRUE or FALSE?
In a base stock policy, the key factors that determine the amount of inventory needed are...
1) Lead Time
2) Service Level (or fill rate)
3) Demand Uncertainty
The Safety Stock in (Q,r) policy depends on desired service level and demand variability over (T+L) period. TRUE or FALSE?
In a base stock policy, the pipeline stock (PS) does not depend upon the review period T. TRUE or FALSE?
Postponement is a form of risk pooling over products. TRUE or FALSE?
Risk Pooling allows to lower inventory and increase service level simultaneously. TRUE or FALSE?
Risk pooling is effective when total demand uncertainty is lower than the uncertainty for individual products. TRUE or FALSE?
The Reorder point in EOQ model depends on the desired service level. TRUE or FALSE?
Demand in after-sales service supply chain is predictable. TRUE or FALSE?
Fill rate is a performance matric of manufacturing supply chain, but cannot be used for after-sales service supply chain. TRUE or FALSE?
In service part optimization, the objective function is to minimize inventory. This is an example of unconstrained optimization. TRUE or FALSE?
Define Inventory turnover ratio:
Is the ratio of annual unit flow rate through the warehouse to average inventory level.
State the principle of warehouse layout design:
Fast moving goods shall be stored at the most convenient location.
Flow-Through configuration of warehouse layout is most beneficial when only a few SKU's are of high volume and many slow moving SKU's. TRUE or FALSE?
False (U-Flow configuration is most beneficial is such situations)
In U-flow configuration of warehouse layout, shipping and receiving are on opposite sides. TRUE or FALSE?
False (on the same side)
Direct shipping network with milk run has lower transportation cost than pure direct shipping model. TRUE or FALSE?
Intermodal transportation means the combination of which two primary modes of transportation?
Truck and Rail
What is the difference between cross docking and traditional warehouse system?
In cross docking strategy, warehouse and distribution centers serve as a transfer points and no inventory is held.
In traditional warehouse, distribution centers and warehouses hold stocks and provide their downstream customers with inventory as needed.
Centralized warehouse system needs to maintain more safety stock compared to decentralized system. TRUE or FALSE?
Faster mode of transportation is preferred for products having small value to weight ratio. TRUE or FALSE?
Choice of transportation option depends on the trade off between (total cost of transportation + inventory + facility) and......
In a demand allocation model between multiple plant locations and multiple markets, the objective function is to minimize the total transportation cost. TRUE or FALSE?
False. (to minimize total production and total transportation cost)
Freight consolidation helps to achieve cost savings and improved customer service at the same time. TRUE or FALSE?
What are the different ways of shipment consolidation?
1) Inventory consolidation
2) Vehicle consolidation
3) Warehouse consolidation
4) Temporal consolidation
What is revenue management?
The task of allocating the right type of capacity to the right type of customer at the right time and cost to maximize revenue.
Gravity Location/COG method is a multiple facility location model? TRUE or FALSE?
False (COG method is a single facility location model)
If a decrease in unit price causes the average demand rate to increase, which one of these would not increase?
The higher the coefficient of variation, the greater the benefit from risk pooling? TRUE or FALSE?
Benefits of risk pooling is smaller when market demands are positively correlated? TRUE or FALSE?
In a push based supply chain, manufacturers react to the real demand from customers, not forecasts. TRUE or FALSE?
Highly specialized, low cost per mile, product requiring no packaging, and very high initial investment costs are characteristics of which transportation mode?
The objective function of the gravity location or the Center of Gravity (COG) model of facility location is the sum of both the total inventory holding and the total transportation costs in the supply chain. TRUE or FALSE?
As the number of facilities in a supply chain increases, the total transportation cost in the supply chain always goes down. TRUE or FALSE?
What is not a factor of influencing network design decisions?
ERP software choice
What are the 3 elements of customer service?