Exam 13: Linking Product Availability to 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.

Scenario 13.3 - We Have No Bananas Weekly demand at the Banana Stand is 200 bananas with a standard deviation of 50.The replenishment lead time is 3 weeks from the plantation in Ecuador.The Banana Stand manager orders 1000 bananas when the inventory drops to 600.Each banana costs $0.50.The holding cost the Banana Stand incurs is 40%. -Use Scenario 13.3 to answer the question.What is the mean and standard deviation of demand during lead time?

Supply chain managers are able to

The costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability.

The cost of overselling is denoted by Co and is the loss incurred by a firm for each unsold unit at the end of the selling season.

Describe the approaches a manager can use to reduce demand uncertainty.

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 13.1 - 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. -What is the optimal quantity of boxes for the professor to bring back home to sell to his friends?

Scenario 13.3 - We Have No Bananas Weekly demand at the Banana Stand is 200 bananas with a standard deviation of 50.The replenishment lead time is 3 weeks from the plantation in Ecuador.The Banana Stand manager orders 1000 bananas when the inventory drops to 600.Each banana costs $0.50.The holding cost the Banana Stand incurs is 40%. -Use Scenario 13.3 to answer the question.What is the cost of understocking?

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?

A retailer places an order for the new Bagpipe 2018™ from the supplier and takes note of the demand pattern.They use this knowledge of the demand to place a second order of Bagpipe 2018 from the supplier.This results in

Explain how tailored sourcing can be used to improve profitability.

Scenario 13.3 - We Have No Bananas Weekly demand at the Banana Stand is 200 bananas with a standard deviation of 50.The replenishment lead time is 3 weeks from the plantation in Ecuador.The Banana Stand manager orders 1000 bananas when the inventory drops to 600.Each banana costs $0.50.The holding cost the Banana Stand incurs is 40%. -Use Scenario 13.3 to answer the question.Suppose the Banana Stand decides to cut their lot size in half.What is the new customer service level?

Postponement is less valuable for a firm that sells a variety of products with one dominant product than for a firm that has a portfolio of products that are equivalent in demand and revenue.

Scenario 13.3 - We Have No Bananas Weekly demand at the Banana Stand is 200 bananas with a standard deviation of 50.The replenishment lead time is 3 weeks from the plantation in Ecuador.The Banana Stand manager orders 1000 bananas when the inventory drops to 600.Each banana costs $0.50.The holding cost the Banana Stand incurs is 40%. -Use Scenario 13.3 to answer the question.What is the customer service level?

Gianni's makes only vanilla ice cream and mashes in fudge,cookie dough,or feathers depending on whether the customer wants fudge ripple,cookie dough,or horsefeathers ice cream.They are following a postponement strategy.

As the standard deviation of the forecast error increases,the expected overstock decreases.

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

If quick response allows multiple orders in the season,profits increase and the overstock quantity increases.

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