Deck 22: CD - Inventory Management With Uncertain Demand

Question 1

Holding backorders when shortages occur and then filling them when inventory is replenished is referred to as shortordering.

Answer 1

False

Question 2

In the perishable product model,the service level is the probability that demand will not exceed the stocking level.

Answer 2

True

Question 3

The perishable product model can be very helpful in determining how much to order.

Answer 3

True

Question 4

Service level can be stated in terms of an order cycle or as an annual amount.

Question 5

The objective of inventory management is to maximize customer service levels.

Question 6

Customer service level and risk of a stockout are related.

Question 7

One consequence of uncertain demand is the risk of incurring shortages.

Question 8

When the item is used in production or is a spare part for a production machine,shortage costs in the perishable product model include the cost of lost production.

Question 9

The overall objective of inventory management is to achieve satisfactory levels of customer service while keeping inventory costs reasonable.

Question 10

When the item is offered for resale,shortage costs in the perishable product model can include a charge for loss of customer goodwill.

Question 11

The reorder point equals the average sales during lead time plus the number of backlogged items.

Question 12

Two main concerns of inventory control relate to the costs and the level of customer service.

Question 13

The cost of overordering is the decrease in profit that results from failing to order a unit that could have been sold during the period.

Question 14

The goal of the perishable product model is to identify the order quantity that will minimize the shortage costs.

Question 15

Variability in demand and/or lead time can be compensated for by safety stock.

Question 16

The service level in a perishable product model is the probability that no shortage will occur.

Question 17

To provide satisfactory levels of customer service while keeping inventory costs within reasonable bounds,two fundamental decisions must be made about inventory: the timing and size of orders.

Question 18

(R,Q)policies indicate to managers the time between orders.

Question 19

The rate of demand is an important factor in determining the reorder point.

Question 20

The perishable product model can be very helpful in determining when to order.

Question 21

The choice of the distribution to use as the demand distribution has little effect on the reorder point.

Question 22

Which of these products would be most apt to involve the use of a perishable product model?

A)Gold coins.
B)Hammers.
C)Fresh fish.
D)Calculators.
E)Frozen corn.

Question 23

In a perishable products model,if the cost of underordering is four times the cost of overordering,then the optimum service level is:

A)1.
B)0.8.
C)0.6.
D)0.4.
E)0.2.

Question 24

Which one of the following is not generally a determinant of the reorder point?

A)Average demand.
B)Length of lead time.
C)Setup cost.
D)Shortage cost.
E)Purchase cost.

Question 25

If,in a perishable product inventory situation,the probabilities of demand being 1,2,3,or 4 units are 0.3,0.3,0.2,and 0.2 respectively,what is the service level if two units are stocked?

A)0.2.
B)0.3
C)0.5.
D)0.6.
E)0.8.

Question 26

Which inventory model is most appropriate if unused or unsold items cannot be carried over to subsequent periods?

A)EOQ.
B)Continuous review.
C)Perishable product.
D)Quantity discounts.
E)(R,Q).

Question 27

Shortage costs are easily quantified.

Question 28

The EOQ and (R,Q)models are appropriate if unused items can be carried over into subsequent time periods.

Question 29

Holding costs may include:

A)cost of warehouse space.
B)record keeping.
C)insurance.
D)taxes.
E)All of the above.

Question 30

A company's supply chain consists of the flow of materials and information from suppliers,through production,to the end users.
Multiple Choice Questions

Question 31

Service level can be measured by:

A)the probability that a stockout will not occur during lead time.
B)The average number of stockouts per year.
C)The average delay in filling backorders.
D)The average percentage of annual demand that can be satisfied immediately.
E)All of the above.

Question 32

A two-bin system is an example of a continuous review inventory system.

Question 33

In a perishable products model,if shortage and excess costs are equal,then the optimum service level is:

A)0.
B)0.33.
C)0.5.
D)0.67.
E)1.

Question 34

A multiechelon inventory system is a system with multiple echelons of inventory where each echelon is used to replenish the inventories at the various sites of the next lower echelon.

Question 35

In the ABC control method,items that have high unit costs are always classified as A items.

Question 36

If average demand for an inventory item is 200 units per day,lead time is three days,and safety stock is 100 units,the reorder point is:

A)100 units.
B)200 units.
C)300 units.
D)600 units.
E)700 units.

Question 37

The ABC control method involves classifying items by unit cost.

Question 38

Estimating shortage costs requires a managerial assessment.

Question 39

Which of the following is not an assumption of the (R,Q)model?

A)Each application involves a single stable product.
B)The inventory level is under continuous review.
C)The only decisions to be made are to choose R and Q.
D)The lead time is fixed.
E)If a stockout occurs,the excess demand is backlogged.

Question 40

Which of the following is not an assumption of the perishable product model?

A)Each application involves a single time period.
B)It is possible to dispose of any units of the product remaining at the end of the period.
C)The only decision to be made is how many units to order.
D)The probability distribution of demand is unknown.
E)There are costs incurred for both underordering and overordering.

Question 41

The average demand for an item is 20 units per day,safety stock is 50 units,and lead time is four days,the reorder point will be:

A)20.
B)50.
C)70.
D)80.
E)130.

Question 42

Which one of these would not be a factor in determining the reorder point?

A)The EOQ.
B)The lead time.
C)The average demand.
D)Holding costs.
E)All are factors.

Question 43

The need for safety stocks can be reduced by an operation strategy which:

A)increases lead time.
B)increases lot sizes.
C)decreases ordering costs.
D)decreases lead time variability.
E)None of the above.