Deck 4: Sales Forecasting and Inventory Management

Question 1

Which of the following is not an important reason to forecast sales?

A) Avoid excess inventory and stock-outs
B) Estimate transportation requirements
C) Improve warranty service levels
D) Estimate amount of product expected to move though warehouses

Answer 1

Improve warranty service levels

Question 2

Commonly used qualitative forecasting methods include:

A) Consensus panel, the Delphi method, and sales force estimates
B) Direct, Indirect, and Estimation methods
C) Balance sheet, Income statement, and cash flow statement methods
D) Derivative method, pre-ship staging, and back-trace flow estimates

Answer 2

Consensus panel, the Delphi method, and sales force estimates

Question 3

Which of the following is a potential problem that can arise when using a Consensus Panel for sales forecasting?

A) It can be difficult to identify experts for the Consensus Panel.
B) A Consensus Panel is highly dependent on employee survey data which can be inaccurate.
C) A consensus cannot be arrived at within a tight forecasting schedule.
D) The consensus can drift toward the panel member with the strongest personality.

Answer 3

The consensus can drift toward the panel member with the strongest personality.

Question 4

A variation of the Consensus Panel method where experts work independently and anonymously, is called:

A) Sales Force Estimate method
B) Delphi Method
C) Moving Average
D) Exponential Smoothing
E) Sales & Operating Planning

Question 5

Sales Force Estimates draw forecasts from the expert judgment of salespersons. Why would a firm choose this forecasting method?

A) Accuracy of a forecast may depend on landing a few large orders from customers.
B) The sales force is closest to the customers and can therefore detect changes in market trends.
C) The sales force is closest to the customers and can therefore anticipate customer needs.
D) All of these options are valid reasons for Sales Force Estimate forecasting

Question 6

Which of the following methods is not a quantitative forecasting method?

A) Delphi Method
B) Moving Average
C) Exponential Smoothing
D) Exponential Smoothing with trend correction
E) Exponential Smoothing with seasonality index

Question 7

Which of the following forecasting methods includes both qualitative and quantitative tools.

A) Consensus Panel
B) Moving Average
C) Sales & Operations Planning
D) Sales Force Estimates

Question 8

Which of the following statements is true concerning Sales & Operations Planning (S&OP)?

A) It is an integrative process used to develop more accurate forecasts.
B) Uses both qualitative and quantitative tools
C) The Operations and Sales teams bear the primary burden of meeting targets
D) Uses a formal S&OP team to develop the final plan
E) All of these options are true

Question 9

Collaborative Planning, Forecasting, & Replenishment (CPFR) models include four primary activities. What are those activities?

A) (1) Focus groups, (2) Statistical mapping, (3) Posting, and (4) Review
B) (1) Strategy & planning, (2) Demand & supply management, (3) Execution, and (4) Analysis
C) (1) Order generation, (2) Fulfillment, (3) Working groups, and (4) Audit
D) (1) Data collection, (2) Exponential smoothing, (3) Differentiation, and (4) Warranty

Question 10

How did Sony Electronics achieve a 40% increase in sales forecast accuracy?

A) Sony fired half of its staff and became a subsidiary of Wal-Mart Stores, Inc.
B) Sony instituted additional security measures to protect its own sales data and decreased the number of staff with access to critical data.
C) Sony used both its Sales & Operations Planning plan along with its Collaborative Planning, Forecasting, & Replenishment process to increase forecast accuracy.
D) Sony increased its asset base by 18% and invested an additional 20% in statistical tools.

Question 11

Level of aggregation impacts the accuracy of forecasts. Forecast error is relatively larger when forecasting a greater level of detail. Which of the following is an example of this?

A) The forecast error when predicting sales of hamburgers would be relatively small versus the forecast error when predicting sales of cheeseburgers.
B) The forecast error when predicting sales of engagement rings would be relatively small versus the forecast error when predicting sales of rose-gold, 3 diamond, engagement rings, in size 5.
C) The forecast error when predicting sales of 2000 piece jigsaw puzzles with photos of animals, would be relatively small versus the forecast error when predicting sales of all puzzles.
D) The forecast error when predicting sales of sofas would be exactly the same as the forecast error when predicting sales of leather, 3 seat, sofas with detachable headrests.

Question 12

Which of the three Forecast Error Measures described in the text is simply a measure of the average error for all time periods considered?

A) Mean Squared Error (MSE)
B) Mean Absolute Percent Error (MAPE)
C) Mean Absolute Deviation (MAD)
D) None of the measures can be described this way.

Question 13

Which one of the following situations is an example of a reason to hold/increase inventory?

A) Great Greetings builds up their inventory of red, envelope-weight paper anticipating the Valentines Day spike in orders.
B) Barry's Best Bikes stocks up on tires of every size because Barry is worried that his warehouse employees are stealing inventory.
C) ACME widget is holding inventory, even though the inventory is probably obsolete. ACME is holding the inventory to avoid the expense of writing it off.
D) All of these are examples of legitimate reasons for holding inventory.

Question 14

Firms often consolidate shipments to save transportation cost, which results in higher inventory because inventory needs to accumulate before shipment. What is the goal of firms that do this?

A) Economies scale
B) Production economies of scale
C) Economies of scale in purchasing
D) Transportation economies of scale

Question 15

What is a key reason why a firm would hold inventory?

A) To maintain a source of supply
B) To prepare for the introduction of a new product introduction
C) To support a customer service policy
D) To prepare for back-to-school sales

Question 16

What is Inventory Carrying Cost?

A) The cost of the capital tied up in the inventory
B) Storage and insurance expenses
C) Risk of damage, shrinkage, and relocation
D) Risk of obsolescence
E) All of these options are components of Inventory Carrying Costs

Question 17

What constitutes inventory carrying cost in an EOQ model?

A) The cost of the capital tied up in the inventory
B) Storage and insurance expenses
C) Risk of damage, shrinkage, and relocation
D) Risk of obsolescence
E) All of these options are components of Inventory Carrying Costs

Question 18

In form postponement, which of the following in incorrect?

A) Labels are only affixed to a product once it is sold
B) Packaging takes place after a product is sold
C) In manufacturing postponement, all of the components are shipped at the same time
D) Assembly postponement occurs when components are assembled in the product's final form after an order is received.

Question 19

What is your economic order quantity if your annual demand is 100 units, the order placement cost is $25, and the holding cost per unit per year is $50?

A) 10 units
B) 50 units
C) 100 units
D) 200 units
E) None of these

Question 20

For a given product, the order placement cost is $5, the holding cost per unit per year is $10, and annual demand is 1,600 units. If the EOQ is used, total annual logistics costs will amount to which of the following?

A) $100
B) $200
C) $400
D) $800
E) None of these

Question 21

If annual demand is 24,000 units, and the order quantity is 3,000 units, then which of the following is true?

A) The annual number of order placements will be 8, and average inventory levels will be 1,500.
B) The annual number of order placements will be 8, and average inventory levels will be 3,000.
C) The annual number of order placements will be 12, and average inventory levels will be 12,000.
D) The annual number of order placements will be 24, and average inventory levels will be 12,000

Question 22

The Mini-Mart in Oxford Ohio holds monthly sales of slower moving goods to make room for incoming products. This is:

A) An example of good inventory management
B) An example of innovation in inventory management
C) An example of meeting customer service expectations
D) A symptom of poor inventory management

Question 23

Which of the following is NOT a symptom of poor inventory management?

A) Suppliers with long or unreliable lead times
B) Purchases based on quantity discount
C) Production planning based on batch sizes
D) Ability to find items in a timely manner

Question 24

Sales Forecasting needs to be perfect, or near perfect, to be useful.

Question 25

Forecasting methods may be divided into two basic categories: direct and indirect.

Question 26

When historical sales data is deemed a good indicator of future sales, quantitative methods of forecasting are recommended.

Question 27

Quantitative forecasts are based on the judgment of one or more knowledgeable forecasters and are used when historical data is scarce.

Question 28

Forecasting methods can be divided into two groups: qualitative and quality.

Question 29

It is not feasible to manage supply chains without a sales forecast.

Question 30

It is possible to avoid making forecasting errors by working more closely with suppliers and customers to build internal integration.

Question 31

Sales & Operations Planning (S&OP) uses only qualitative methods to construct a sales forecast.

Question 32

Time horizon and level of aggregation impact the level of forecast error.

Question 33

Forecast error decreases the farther into the future the period covered by the forecast.

Question 34

The overarching goal of inventory management is to reduce inventory investment.

Question 35

Maintaining inventory is how firms support services such as product availability and delivery time.

Question 36

One reason to hold inventory is the transportation economies of scale. Here, due to the tapering principle more inventory on a truck costs more per unit, thereby creating economies of scale.

Question 37

One reason to hold inventory is to maintain a source of supply, such as when a small set of suppliers provide specialized or difficult to find products.

Question 38

There is a cost trade-off that firms must consider when deciding how much inventory to order. The trade-off is between sales commission and the cost of hiring new supply chain employees.

Question 39

Since carrying inventory is relatively inexpensive (compared to transportation, production, marketing, etc.) firm should hold enough inventory to meet customer demand.

Question 40

Once inventory levels are decided, a firm can then determine what level of customer service it will provide.

Question 41

Under conditions of uncertainty, the average inventory is equal to ½ of the order quantity.

Question 42

One important factor impacting safety stock is inventory lead time.

Question 43

AT&T is selling a new iPhone, which is in high demand. Unfortunately, they run out of the phones quickly; this is because they are not managing their inventory effectively.

Question 44

During the hurricane season Lowe's and Home Depot shift inventory (plywood, generators, etc.) between stores based on storm predictions. This is a symptom of poor inventory management.