Exam 13: Linking Product Availability to Profits

As the ratio of the cost of overstocking to the cost of understocking gets smaller,the optimal level of product availability decreases.

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

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

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

Explain how tailored postponement can improve profitability.

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

As the number of order cycles per season increases,

A company that uses a more expensive short lead time supplier as a backup for a low cost,long lead time supplier is using

A supply chain can increase revenue by using a high 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. -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. )What is the expected number of boxes that he doesn't sell?

If quick response allows multiple orders in the season,

As the total quantity for the season is broken up into multiple smaller orders,the buyer is better able to

There is a cost associated with postponement because the production cost using postponement is typically

Postponement is

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

Under tailored postponement,a firm produces the amount that is very likely to sell using

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 loses all demand during a stockout and each lost sale results in a loss of $2 profit.What is the customer service level?

Postponement is valuable for a firm that

Inexpensive production methods should be used for unpredictable demand while more expensive production methods should be used for stable demand.

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