Exam 13: Determining the Optimal Level of Product Availability

Describe the two key factors that influence the optimal level of product availability within a supply chain.

An increase in forecast accuracy increases both the overstocked and understocked quantity and decreases a firm's profits.

________ allows a firm to increase profits and better match supply and demand if the firm produces a large variety of products whose demand is unpredictable, not positively correlated, and is of about the same size.

Postponement is

The margin lost by a firm for each lost sale because there is no inventory on hand is

A high level of product availability requires ________, which raises supply chain costs.

When ordering a single product, it is optimal for the buyer to order the minimum of the available capacity and the optimal order quantity. When ordering multiple products,

Scenario 13.2 - Fish or Chicken The taco stand in the atrium of the new College of Business building carried two items, fish tacos and chicken tacos. The fish tacos sell for $15 and are made out of $5 of ingredients and the chicken tacos sell for $10 and are made out of $4 of ingredients. Some days the taco stand owner has only chicken at his disposal, so he makes nothing but chicken tacos, and some days the opposite is true and he makes only fish tacos. Thus, he is able to estimate demand for chicken tacos at 2500 per day with a standard deviation of 600 and the demand for fish tacos at 2000 per day with a standard deviation of 500. Any fish or chicken tacos that do not sell at the end of the day can be sold for $1 each as bait. On days when both proteins are available, the taco stand manager prefers to make a few of each kind. All tacos are made in his home kitchen and then transported to campus. Due to time constraints and the capacity of his pickup truck bed, he is limited to beginning each day with only 3000 tacos. -Faced with a 3000 taco capacity constraint, what is the optimal number of chicken tacos to prepare?

________ may reduce overall profits for a firm if a single product contributes the majority of the demand.

Scenario 13.1 - Nefarious The tenured professor routinely led student groups on factory tours in exotic locales, and one popular destination was an island south of Miami. The students enjoyed this happy little island and the professor liked it because he could supplement his income by bringing back a few boxes souvenirs he could sell to his friends. The souvenirs cost the professor $125 a box and he sells them for $290 a box. Souvenirs that dry out due to age can be sold for $80. Experience has shown that the demand for boxes of these souvenirs has a mean of 80 with a standard deviation of 20. -Naturally, the professor will purchase the optimal number of boxes. (He's had a course or two in supply chain management and knows this model well.) If each of his friends purchases only one box, how many friends will he turn away because he runs out of boxes of souvenirs?

As the ratio of the cost of overstocking to the cost of understocking gets smaller,

A supply chain can use a high level of product availability to improve its responsiveness and attract customers, thus increasing revenue for the supply chain.

A supply chain needs to achieve a balance between the level of availability and the cost of inventory that maximizes supply chain revenues.

Quick response is clearly advantageous to

Quick response results in the manufacturer making a lower profit in the short term if all else is unchanged.

In volume-based tailored sourcing, the predictable part of a product's demand is produced at a flexible facility, whereas the uncertain portion is produced at an efficient facility.

Scenario 13.2 - Fish or Chicken The taco stand in the atrium of the new College of Business building carried two items, fish tacos and chicken tacos. The fish tacos sell for $15 and are made out of $5 of ingredients and the chicken tacos sell for $10 and are made out of $4 of ingredients. Some days the taco stand owner has only chicken at his disposal, so he makes nothing but chicken tacos, and some days the opposite is true and he makes only fish tacos. Thus, he is able to estimate demand for chicken tacos at 2500 per day with a standard deviation of 600 and the demand for fish tacos at 2000 per day with a standard deviation of 500. Any fish or chicken tacos that do not sell at the end of the day can be sold for $1 each as bait. On days when both proteins are available, the taco stand manager prefers to make a few of each kind. All tacos are made in his home kitchen and then transported to campus. Due to time constraints and the capacity of his pickup truck bed, he is limited to beginning each day with only 3000 tacos. -Suppose the taco stand manager could wake up a little earlier and borrow his buddy's full size pickup to transport tacos to campus. If time and capacity were not an issue, how many total tacos should he bring to campus each day?

Supply chain managers are able to

Whether the optimal level of product availability is high or low depends on where a particular company believes they can

A supply chain needs to achieve a balance between the level of availability and the cost of inventory that