Deck 11: Managing Inventory Throughout the Supply Chain

Question 1

Dependent demand inventory never needs to hold hedge inventory.

Answer 1

False

Question 2

Gordon went to the grocery store and bought a bag of carrots.He needed only three for his cottage pie recipe,but they came twelve to a bag so he diced three and tossed the rest in the crisper compartment of his stainless steel refrigerator.As he screamed his insults at his children they reminded themselves that he wasn't upset with them,rather he was concerned about the high level of ________ stock he was holding.

Answer 2

cycle

Question 3

In a periodic review system,if the average demand increases by 100%,the safety stock level is:

A) increased by 200%.
B) increased by 100%.
C) decreased by 50%.
D) increased by 40%.

Answer 3

B

Question 4

Which of the following relationships shows dependent demand inventory?

A) A business purchases a new car when the old one wears out.
B) A tire maker buys cleaning supplies.
C) An automaker purchases four tires for each car they produce.
D) A winemaker buys grapes from farmers in the Columbia Valley.

Question 5

Extra inventory that is held to protect against uncertainties in either demand or lead time is called ________.

Question 6

The inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time is called:

A) safety stock.
B) anticipation inventory.
C) hedge inventory.
D) smoothing inventory.

Question 7

Describe any four types of inventory and the drivers that spur their need.

Question 8

The order quantity in a periodic review system rises as the on-hand inventory falls.

Question 9

Companies do not plan to use safety stock.

Question 10

Inventory that is "in the pipeline" moving from one link to another is:

A) anticipation inventory.
B) transportation inventory.
C) smoothing inventory.
D) hedge inventory.

Question 11

In a periodic review system,if the average demand increases by 100%,the restocking level is:

A) increased by 200%.
B) decreased by 100%.
C) decreased by 50%.
D) increased by 40%.

Question 12

A hospital's biomedical repair shop uses a 4-week periodic system to maintain the inventory on the blood pressure cuff repair parts.They use an average 40 adult arm cuffs with a standard deviation of 6 cuffs every 4 weeks.Cuffs aren't the most critical item they carry,but the manager would like to avoid the embarrassment of a stockout at least 95% of the time.What should their restocking level be?

A) 40 cuffs
B) 46 cuffs
C) 50 cuffs
D) 52 cuffs

Question 13

Individual links in the supply chain can stabilize their production at the most efficient level by using:

A) safety stock.
B) anticipation inventory.
C) linkage inventory
D) smoothing inventory.

Question 14

The restocking level increases as the service level falls.

Question 15

Cycle stock can occur at more than one point in a supply chain.

Question 16

A company that orders at their economic order quantity has an annual ordering cost that is half of their total cost.

Question 17

The beef jerky driver shows up every Monday to take orders from his convenience store customers.One fine Monday morning he stops in the Quik-E Mart and notes that there are only three sticks on the shelves.Consulting his route sheet,he discovers that the restocking level is 40.The order quantity is therefore:

A) 3 sticks.
B) 37 sticks.
C) 40 sticks.
D) Cannot be determined with the information given.

Question 18

The mismatch between timing of customer demand and supply chain lead times is what drives the need for:

A) safety stock.
B) anticipation inventory.
C) cycle stock.
D) hedge inventory.

Question 19

Inventory items with demand levels that are beyond an organization's complete control are termed ________.

Question 20

Tata Motors assembles cars from their own parts and subassemblies and also controls the mining and fabrication of the materials used to create those parts.When Anand ordered his luxury sedan with the platinum dashboard he knew he wouldn't be taking delivery of his dream car the next week.Rather,he would be waiting a while thanks to:

A) a mismatch between supply chain lead time and customer demand.
B) a mismatch between overall demand levels and productive capacity.
C) a mismatch between demand and the most efficient production volume.
D) a mismatch between demand and the most efficient shipment volume.

Question 21

The campus bookstore sells 4,000 sets of graduation regalia each year.Placing an order from their supplier costs $25 regardless of order quantity,so they usually place a large order (a half year's supply)at a time.It costs $5 per year to hold a cap and gown in inventory,primarily insurance costs for the highly flammable material.What is the total cost if they order at their optimal order quantity?

A) $1,650
B) $1,500
C) $1,000
D) $2,000

Question 22

The campus bookstore sells 4,000 sets of graduation regalia each year.Placing an order from their supplier costs $25 regardless of order quantity,so they usually place a large order (a half year's supply)at a time.It costs $5 per year to hold a cap and gown in inventory,primarily insurance costs for the highly flammable material.What is the difference in the total cost if they order at their optimal order quantity compared to their current policy?

A) $4,550
B) $5,050
C) $3,550
D) $4,050

Question 23

Safety stock increases when:

A) probability of a stockout increases.
B) average demand increases.
C) delivery speed increases.
D) demand fluctuations decrease.

Question 24

A replenishment order for inventory is made when a predetermined stock level is reached in a(n)________ inventory system.

Question 25

A law firm always orders 50 cases of paper from their office supply company.They incur an annual holding cost of $15 per case and have an ordering cost of $25 each time they place an order.If their annual demand is 480 cases,how much could they save annually by switching to their economic order quantity?

A) $15
B) $25
C) $40
D) $80

Question 26

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence,as slowly)as possible.Central Perk uses 80 filters a day with a standard deviation of 15 days.It would be disastrous if they ran out of these filters,years ago customers caught them using paper towels from the men's room and business suffered.They have set their service level at 99.5% in hopes of avoiding a similar situation.It takes a fortnight to receive a shipment and the standard deviation of the shipping time is five days.What is their reorder point?

A) 1865 filters
B) 1962 filters
C) 2074 filters
D) 2158 filters

Question 27

A haberdashery orders cravats from manufacturers overseas to satisfy their demand rate of 5,000 units per year that has been stable for the past decade.Placing an order costs 15 euro and holding each cravat in inventory for a year costs 2 euro.The manufacturer offers price breaks for large orders: ordering between 1 and 99 cravats earns the haberdashery a price of 3.5 euro,but ordering 100 to 999 carries a 3.4 euro price.An order of 1000 cravats or more drops the price to 3.3 euro.What's the optimal order quantity for the haberdashery?

A) 99
B) 274
C) 382
D) 999

Question 28

A manufacturer replenishes their packaging materials according to the economic order quantity model.They use 25,000 cases of packaging materials per year and order 500 cases at a time.Their cost to carry a case in inventory for a year is $12.How much does it cost them to place an order with their supplier?

A) $12
B) $60
C) $720
D) $5

Question 29

The cashier waved the can of golden hominy across the holographic bar code reader and it emitted a piercing beep.At the same time the customer's bill was rising,the grocery store's inventory was automatically being reduced by 1 can of golden hominy down to 3 cans.This was the bare minimum amount of hominy the store manager dared carry in inventory,so the computer system automatically sent a message to the hominy man,who loaded a few cases onto his delivery truck for tomorrow morning's trip to replenish the store.This is a classic example of:

A) a periodic review system.
B) safety stock.
C) a continuous review system.
D) cycle stock.

Question 30

In order for the economic order quantity model to work,demand must be known and constant.

Question 31

Which of these conditions is NOT necessary for the economic order quantity model to be valid?

A) The item has a constant demand.
B) The item has a constant lead time.
C) The item has a constant price.
D) The item has a constant safety stock.

Question 32

A university orders all office supplies,including red grading pens,out of a catalog from the same supplier.Conservative estimates of the demand for these red pens are 12,000 pens per year.There is a $25 charge for placing an order and the university has a $10 annual cost for holding these pens.Prices for the pens are based on the quantity purchased,so if less than 100 are ordered,the unit price is $2.50,if 100 to 299 are ordered,the unit price is $2.40,if 300 to 499 are ordered,the unit price is $2.30,and if 500 or more are ordered,the unit price is $2.20.What order quantity will result in the lowest total annual cost to the university?

A) 100
B) 245
C) 300
D) 500

Question 33

Central Perk orders their organic coffee filters from a South American supplier that mails them as inexpensively (hence,as slowly)as possible.Central Perk uses 80 filters a day with a standard deviation of 5 days.It would be disastrous if they ran out of these filters,years ago customers caught them using paper towels from the men's room and business suffered.They have set their service level at 99% in hopes of avoiding a similar situation.It takes a fortnight to receive a shipment and the standard deviation of the shipping time is two days.What is their reorder point?

A) 1120 filters
B) 1450 filters
C) 1490 filters
D) 1515 filters

Question 34

Which of these conditions is likely to cause a decrease in the probability of a stockout?

A) higher lead time variance
B) lower lead time
C) higher demand level variance
D) lower service level

Question 35

The campus bookstore sells 4,000 sets of graduation regalia each year.Placing an order from their supplier costs $25 regardless of order quantity,so they usually place a large order (a half year's supply)at a time.It costs $5 per year to hold a cap and gown in inventory,primarily insurance costs for the highly flammable material.What is the difference in their holding cost if they order at their optimal order quantity compared to their current policy?

A) $4,500
B) $4,400
C) $4,200
D) $4,000

Question 36

The campus bookstore sells 4,000 sets of graduation regalia each year.Placing an order from their supplier costs $25 regardless of order quantity,so they usually place a large order (a half year's supply)at a time.It costs $5 per year to hold a cap and gown in inventory,primarily insurance costs for the highly flammable material.What is their optimal order quantity?

A) 150
B) 200
C) 1,000
D) 2,000

Question 37

In a(n)________ review system,orders are placed at a constant time interval,but in a(n)________ review system,a constant order is placed at a variable time level.

Question 38

In order to find the lowest cost ordering policy in a quantity discount model,you must compare the holding cost,ordering cost,and the price per unit for various order quantities.

Question 39

If annual demand increases by 100%,the average inventory held in a system governed by the EOQ model is:

A) increased 100%.
B) decreased by 100%.
C) decreased by 50%.
D) increased by 40%.

Question 40

Decreases in the standard deviation of demand reduce the amount of safety stock that should be held.

Question 41

The food engineers at Moria Foods have developed a new variety of banana they have named the "mayfly banana" which holds perfect ripeness for exactly one day before becoming a black-skinned sack of putrid mush.Which of these actions will result in a lower order quantity from the many retail establishments clamoring to stock up on this new foodstuff?

A) an increase in the price consumers are willing to pay for the mayfly banana
B) an increase in the standard deviation of the number of mayfly bananas demanded by consumers
C) a decrease in the salvage value of the mayfly bananas
D) a decrease in the disposal cost of the mayfly bananas

Question 42

Nothing is too good for my cats,so all their food is custom made at Catastic,who operates a specialty organic food mill in an adjacent state.We need 500 pounds of food per year,distributed evenly throughout the year.It costs $20 shipping and handling to place and receive an order for this delicious food.The cats are fed only on week days,so the 500 pounds per year translates to 2 pounds per day (we go out to restaurants on the weekends).Of course,my cats don't always eat exactly 2 pounds per day,their demand could more precisely be described as an average of 2 pounds and a standard deviation of 0.3 pounds per day.It takes ten days on average to receive an order for food once I place it.It costs $35 to hold a pound of food in inventory for a year and the food costs $850 per pound.It's expensive,yes,but again,nothing is too good for my cats.
What amount should I order and when should I order it if I want only a 1% chance of running out of food for my cats?

Question 43

Buying advance tickets for the Giraffe Massacre concert on New Year's Eve saves the buyer one-tenth of one percent on the face value of the tickets.It would be wise to buy tickets well in advance of the concert date.

Question 44

A local barbecue joint makes one massive batch of potato salad each day.If they run out of this savory side before the end of the day,their last few customers are less than satisfied,but if they make too much,they sell it to the local hog farmer for feed.Every serving costs an equivalent of $0.23 to make,but can be sold for $2.50 to customers and for $0.12 to the hog farmer.The average daily demand is for 400 servings with a standard deviation of 40 servings.How many servings should be made each day?

A) 467
B) 453
C) 462
D) 455

Question 45

A local barbecue joint makes one massive batch of potato salad each day.If they run out of this savory side before the end of the day,their last few customers are less than satisfied,but if they make too much,they sell it to the local hog farmer for feed.Every serving costs an equivalent of $0.23 to make,but can be sold for $1.50 to customers and for $0.08 to the hog farmer.The average daily demand is for 200 servings with a standard deviation of 20 servings.How many servings should be made each day?

A) 220
B) 225
C) 230
D) 235

Question 46

A company using the basic EOQ model has annual ________ costs equal to annual ________ costs.

Question 47

Derive the economic order quantity model,beginning with a definition of terms and graph of cost curves.

Question 48

In a single period inventory system,as the average demand rises,the standard deviation of demand falls.

Question 49

Degan routinely drove the 400-mile round trip to his favorite grocery store to stock up on bread,which cost $1.50 per loaf.Running out would be disastrous - an unplanned trip to this store would mean a custom order that would run $7.75 per loaf.Overstocking wasn't a big issue,he could sell it to his teaching partner for $0.10 per loaf.With a demand that is normally distributed with a mean of 125 and standard deviation of 15,what is Degan's optimal purchase quantity on his next trip to the store?

A) 139
B) 173
C) 115
D) 128

Question 50

A target service level is the point where the expected cost of a shortage equals the expected cost of having excess units.

Question 51

Three Chums Fish Company buys fresh salmon daily from the fishermen that ply the deep waters of Puget Sound.Salmon are purchased for $2.50 per pound and sold to the public at $8.50 per pound.The salmon are kept fresh by displaying them on ice but at the end of the day,any unsold fish have a noticeable odor and are sold to a nearby chowder stand for $1 per pound.The past year's demand for salmon on Saturdays is shown in the table.Based on this information,what should their target service level and stocking point be? What is the significance of the target stocking level?

Question 52

A small refrigeration shop stocks up on electric motors from a catalog supplier located in the Midwest.The price of the motors varies depending on the quantity purchased; the price breaks are shown in the table.The refrigeration shop knows it will need around 600 motors for the coming season and that it will cost them about $40 to place an order.Storage cost for the motors is $10 each.In previous years they have bought all 600 at once and they are considering doing this again.What order quantity would you advise and how much can they save using your recommendation instead of their one order per year strategy?

Question 53

Tickets for the gala Opening Night festivities in Oklahoma City are available for $80 in advance at a couple of area businesses.If you wait until you arrive at the venue,you will pay full face value of $100 per ticket to enjoy the same festivities.If you buy a ticket and don't use it,you can buy $25 worth of chemicals and treat the ticket so that it can be used the following year.You have been taking orders from your friends for a few years and historically demand has been normally distributed with a mean of 50 tickets and a standard deviation of 10.What's the best quantity of tickets to purchase for this year's event?

Question 54

In a single period system,the target ________ is the balancing point between shortage costs and excess costs.

Question 55

The excess cost of an item is the profit you would have made on it.

Question 56

A catfish bait manufacturer uses a secret blend of ingredients to make their infamous bait.One of these ingredients,we'll call it X for proprietary reasons,is the major component in the mixture.X is ordered in 55 gallon barrels from out of state and is used at the rate of 800 barrels per year.Each order that is placed with the supplier costs $45 to process.Storage space is at a premium on the manufacturing floor and out in the yard,so their annual cost to hold inventory is $80 per barrel.The owner's brother-in-law provides transportation services and his record has been less than stellar,so lead time has averaged 6 days with a standard deviation of 3 days.Stopping the process would be disastrous,so the plant manager has set a 99% service level on the reorder point.
What is the best order quantity?
What is the total cost at this reorder point?
What is the reorder point?
What is the cost of holding this safety stock?

Question 57

Cavalier Enterprises elects to hold no safety stock.Their service level is therefore ________.

Question 58

Geoff hesitated as he read the fast food menu,unsure whether he should supersize his order of delicious golden French fries.Doing so would increase his cost from $0.99 to $1.59 and just might provide him the nutrition he needed to make it through the second half of his day at the office.Of course,if he finished his hamburger and the usual amount of fries,he would simply throw the extra ones away.However,if he failed to supersize his order,he would have to take a candy bar break mid-afternoon and they weren't exactly giving them away in the break room vending machines.He would likely need two candy bars,which sold for $0.95 each.What is Geoff's target service level?

A) 0.29
B) 0.61
C) 0.76
D) 0.87

Question 59

The campus bookstore sells 4,000 sets of graduation regalia each year.Placing an order from their supplier costs $25 regardless of order quantity,so they usually place a large order (a half year's supply)at a time.It costs $5 per year to hold a cap and gown in inventory,primarily insurance costs for the highly flammable material.What is the difference in their holding cost if they order at their optimal order quantity compared to their current policy?

Question 60

Warren hesitated as he read the fast food menu,unsure whether he should supersize the orders of delicious golden French fries.As the office lunch boy,he was responsible for buying enough food to keep his coworkers satiated during the rest of the work day.Supersizing would increase his cost from $0.99 to $1.59 and just might provide his colleagues the nutrition they needed to make it through the second half of his day at the office.Of course,if they finished his hamburger and the usual amount of fries,Warren would simply throw the extra ones away.However,if he failed to supersize the orders,he would have to purchase candy bars during the afternoon and they weren't exactly giving them away in the break room vending machines.Each hungry colleague would likely need two candy bars,which sold for $1.25 each.With a demand that is normally distributed with a mean of 15 and standard deviation of five,what is Warren's optimal supersize decision?

A) 16.3
B) 17.3
C) 18.3
D) 19.3

Question 61

The ________ is an extreme change in the supply position upstream generated by a small change in demand downstream.

Question 62

Supply chain inventory:

A) increases in cost as materials move downstream.
B) decreases in value as materials progress downstream.
C) increases in flexibility as materials progress upstream.
D) is governed by the bullwhip effect, which says a small change upstream can cause a large change downstream.

Question 63

Order quantity decisions are typically made in isolation from considerations of transportation,packaging,and material handling.

Question 64

Define the bullwhip effect and discuss the advantages of holding inventory far upstream or downstream in the supply chain.

Question 65

The factory produces product and ships it to the distributor.The distributor sends it to the wholesaler when they receive an order.The wholesaler ships the product to the retailer as the retailer requests replenishment.The customer visits the retailer's bricks and mortar store to purchase the product when they run out.Which of these supply chain members is most likely subjected to the greatest variability in customer demand?

A) retailer
B) wholesaler
C) distributor
D) factory

Question 66

A local barbecue joint makes one massive batch of potato salad each day.If they run out of this savory side before the end of the day,their last few customers are less than satisfied,but if they make too much,they sell it to the local hog farmer for feed.Every serving costs an equivalent of $0.23 to make,but can be sold for $2.50 to customers and for $0.12 to the hog farmer.The average daily demand is for 400 servings with a standard deviation of 40 servings.How many servings should be made each day? One day the hog farmer cancels the contract - evidently there are some things that even hogs won't eat.With no fallback position,how many servings of potato salad should the barbecue joint make? Discuss the discrepancy between the two numbers.

Question 67

The value of goods on a "per unit" basis upstream in a supply chain is greater than the value of those same goods downstream in a supply chain.

Question 68

The flexibility of inventory increases as materials move down the supply chain.

Question 69

The bullwhip effect says that a small change in demand downstream in the supply chain causes a large change in demand upstream.