Exam 13: Determining the Optimal Level of Product Availability

In the previous problem, the manufacturer performs additional market research. Based on this research, they determine that they can increase the price to $150 and are able to reduce the standard deviation of the forecast to α = 30. At the same time, they have made an arrangement with an outlet store that will purchase unsold equipment for $60 each. How will these changes affect the cost of overstocking, cost of understocking, optimal cycle service level and optimal order size?

With reduced demand uncertainty, a supply chain manager can better match supply and demand by reducing both overstocking and understocking.

A high level of product availability requires less inventory, which will keep costs down for the supply chain.

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

If quick response allows multiple orders in the season,

In product-based tailored sourcing,

The cost of underselling is a key factor that influences the optimal level of product availability.

Quick response results in

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 fish tacos to prepare?

In volume-based tailored sourcing,

Explain how tailored postponement can improve profitability.

The level of product availability

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. -The professor's suitcase has room for 50 boxes of souvenirs. What is his expected profit?

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

Postponement is valuable for a firm that sells a large variety of products with demand that is independent and comparable in size.

An increase in forecast accuracy

The level of product availability, also referred to as the ________, is one of the primary measures of a supply chain's responsiveness.

The loss incurred by a firm for each unsold unit at the end of the selling season is

When setting optimal levels of product availability in practice, it is important to