Deck 13: Linking Product Availability to Profits

Question 1

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

Answer 1

False

Question 2

Whether the optimal level of availability is high or low depends on where a particular company believes they can maximize profits.

Answer 2

True

Question 3

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.

Answer 3

True

Question 4

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

Question 5

A supply chain can use a high level of product availability to improve its responsiveness and attract customers.

Question 6

A managerial lever to increase profitability is to decrease the salvage value of each unit.

Question 7

The production cost without postponement is usually higher than the production cost with postponement.

Question 8

A supply chain needs to achieve a balance between the level of availability and the cost of inventory that maximizes supply chain revenues.

Question 9

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

Question 10

The cost of understocking is denoted by Cu and is the margin lost by a firm for each lost sale because there is no inventory on hand.

Question 11

An increase in forecast accuracy increases both the overstocked and understocked quantity and decreases a firm's profits.

Question 12

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

Question 13

A supply chain can increase revenue by using a high level of product availability.

Question 14

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.

Question 15

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

Question 16

As the number of order cycles per season decreases,the leftover inventory at the end of the season increases.

Question 17

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

Question 18

A high level of product availability requires less inventory,which will keep costs down for the supply chain.

Question 19

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

Question 20

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

Question 21

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

A)no stock out level
B)reliability level
C)customer service level
D)logistics measure

Question 22

The level of product availability

A)is also referred to as the customer service level.
B)is an important component of any supply chain's responsiveness.
C)increases revenues for the supply chain by increasing sales.
D)Only A and B are true.

Question 23

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?

A)88
B)74
C)96
D)82

Question 24

A supply chain needs to achieve a balance between the level of availability and the cost of inventory that

A)maximizes supply chain revenues.
B)minimizes supply chain costs.
C)maximizes supply chain profitability.
D)maximizes supply chain availability.

Question 25

Whether the optimal level of product availability is high or low depends on where a particular company believes they can

A)minimize cost.
B)maximize revenue.
C)maximize profits.
D)maximize product availability.

Question 26

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.

Question 27

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?

A)5
B)18
C)13
D)7

Question 28

The loss incurred by a firm for each unsold unit at the end of the selling season is

A)the cost of overstocking the product.
B)the cost of stocking the product.
C)the cost of understocking the product.
D)the cost of overselling the product.

Question 29

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

Question 30

A high level of product availability requires ________,which raises supply chain costs.

A)large inventories
B)increased revenues
C)reduced costs
D)understocking the product

Question 31

Tailored postponement allows a firm to increase its profitability by only postponing the uncertain part of the demand and producing the predictable part at a lower cost without postponement.

Question 32

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.
The professor's suitcase has room for 50 boxes of souvenirs.What is his expected profit?

A)$10,241
B)$11,975
C)$9,863
D)$8,127

Question 33

A high level of product availability requires

A)large inventories and tends to raise costs for the supply chain.
B)large inventories and tends to reduce costs for the supply chain.
C)small inventories and tends to raise costs for the supply chain.
D)small inventories and tends to reduce costs for the supply chain.

Question 34

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

A)the cost of overstocking the product.
B)the cost of stocking the product.
C)the cost of understocking the product.
D)the cost of overselling the product.

Question 35

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.
The professor's suitcase has room for 50 boxes of souvenirs.How many boxes does he expect to have left once his friends have bought what they want?

A)0
B)1
C)2
D)3

Question 36

The margin lost from current as well as future sales if the customer does not return should be included in

A)the cost of overstocking the product.
B)the cost of stocking the product.
C)the cost of understocking the product.
D)the cost of overselling the product.

Question 37

Responsive strategies like postponement are most effective when demand uncertainty is high.

Question 38

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. )If each of his friends purchases only one box,how many friends will he turn away because he runs out of boxes of souvenirs?

A)5
B)3
C)2
D)1

Question 39

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 his expected profit from purchasing the optimal number of boxes?

A)$11,975
B)$11,455
C)$11,165
D)$10,835

Question 40

Postponement is valuable for a firm that sells a large variety of products with demand that is independent and comparable in size.

Question 41

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.
The costs of overstocking and understocking have a direct impact on

A)the optimal cycle service level but not profitability.
B)profitability but not the optimal cycle service level.
C)both the optimal cycle service level and profitability.
D)neither the optimal cycle service level nor profitability.

Question 42

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 cost of understocking?

A)$0.02
B)$0.03
C)$0.04
D)$0.05

Question 43

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?

A)0.9950
B)0.9905
C)0.9505
D)0.9055

Question 44

Which of these options would NOT increase profitability?

A)Increase the salvage value of each unit.
B)Decrease the margin lost from a stockout.
C)Decrease the uncertainty of demand.
D)Decrease the number of orders per season.

Question 45

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?

A)DL = 600,σL = 86.60
B)DL = 200,σL = 50
C)DL = 10,400,σL = 252.38
D)DL = 10,400,σL = 50

Question 46

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?

A).65
B).60
C).55
D).50

Question 47

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

A)the optimal level of product availability becomes irrelevant.
B)the optimal level of product availability decreases.
C)the optimal level of product availability remains stable.
D)the optimal level of product availability increases.

Question 48

As the standard deviation of forecast error increases,

A)expected overstock increases and expected understock increases.
B)expected overstock increases and expected understock decreases.
C)expected overstock decreases and expected understock increases.
D)expected overstock decreases and expected understock decreases.

Question 49

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?

A)0.40
B)0.50
C)0.60
D)0.70

Question 50

In tailored sourcing,firms use a combination of two supply sources,

A)one focusing on cost but unable to handle uncertainty well,and the other focusing on flexibility to handle uncertainty,but at a higher cost.
B)one focusing on cost and able to handle uncertainty well,and the other focusing on flexibility to handle uncertainty,but at a higher cost.
C)one focusing on cost but unable to handle uncertainty well,and the other focusing on flexibility to handle uncertainty at a lower cost.
D)one focusing on cost and able to handle uncertainty well,and the other focusing on flexibility to handle uncertainty at a lower cost.

Question 51

Quick response is clearly advantageous to

A)a distributor in the supply chain.
B)a retailer in the supply chain.
C)a manufacturer in the supply chain.
D)every step in the supply chain.

Question 52

Quick response results in

A)the manufacturer making a lower profit in the long term if all else is unchanged.
B)the manufacturer making a lower profit in the short term if all else is unchanged.
C)the retailer making a lower profit in the short term if all else is unchanged.
D)the distributor making a lower profit in the short term if all else is unchanged.

Question 53

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)tailored sourcing.
B)quick response.
C)postponement.
D)improved forecasting.

Question 54

In volume-based tailored sourcing,

A)the predictable part of a product's demand is produced at an efficient facility.
B)the uncertain portion is produced at an efficient facility.
C)the predictable part of a product's demand is produced at a flexible facility.
D)the predictable part of a product's demand is outsourced.

Question 55

In product-based tailored sourcing,

A)low-volume products with uncertain demand are obtained from a flexible source.
B)high-volume products with less demand uncertainty are obtained from an efficient source.
C)high-volume products with less demand uncertainty are obtained from a flexible source.
D)A and B only

Question 56

An increase in forecast accuracy

A)decreases both the overstocked and understocked quantity and decreases a firm's profits.
B)decreases both the overstocked and understocked quantity and increases a firm's profits.
C)increases both the overstocked and understocked quantity and decreases a firm's profits.
D)increases both the overstocked and understocked quantity and increases a firm's profits.

Question 57

As lead times decrease,supply chain managers are able to

A)better match supply with demand.
B)better match demand with supply.
C)increase supply chain cost.
D)decrease product availability.

Question 58

Supply chain managers are able to

A)increase their forecast accuracy as lead times increase.
B)increase their forecast accuracy as lead times decrease.
C)decrease their forecast accuracy as lead times decrease.
D)decrease their forecast accuracy as lead times increase.

Question 59

Which of the following would be a strategy to decrease the margin lost in a stockout?

A)Arranging for backup sourcing
B)Discarding the unused material
C)Selling unsold product to an outlet store
D)Reducing the level of cycle inventory

Question 60

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?

A)$0.02
B)$0.03
C)$0.04
D)$0.05

Question 61

As the standard deviation of forecast error increases,

A)expected profit increases and expected understock increases.
B)expected profit increases and expected understock decreases.
C)expected profit decreases and expected understock increases.
D)expected profit decreases and expected understock decreases.

Question 62

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,

A)the buyer should treat each product as a unique purchase and optimize each on an individual basis.
B)the buyer must consider trade-offs between ordering more of one product than another.
C)the buyer should average the cost,procurement,and holding parameters and create a basket product that consists of equal ratios of all items.
D)the buyer should construct a weighted average based on all individual item demands and optimize this quantity.

Question 63

The value of postponement decreases as

A)uncertainty increases or demand is positively correlated among end products.
B)uncertainty increases or demand is negatively correlated among end products.
C)uncertainty decreases or demand is negatively correlated among end products.
D)uncertainty decreases or demand is positively correlated among end products.

Question 64

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)2500
B)3000
C)5041
D)5500

Question 65

Postponement is valuable for a firm that

A)sells a large variety of products with demand that is dependent and comparable in size.
B)sells a large variety of products with demand that is independent and comparable in size.
C)sells a small variety of products with demand that is dependent and comparable in size.
D)sells a small variety of products with demand that is independent and comparable in size.

Question 66

If quick response allows multiple orders in the season,

A)the manufacturer sells less to the retailer in the short term.
B)the manufacturer sells more to the retailer in the short term.
C)the manufacturer gains more supply chain surplus than the retailer.
D)the retailer must initially expend more effort for the same return.

Question 67

If quick response allows multiple orders in the season,

A)profits decrease and the overstock quantity decreases.
B)profits decrease and the overstock quantity increases.
C)profits increase and the overstock quantity decreases.
D)profits increase and the overstock quantity increases.

Question 68

A company with multiple products that chooses to delay product differentiation until closer to the point of sale is using

A)tailored sourcing.
B)quick response.
C)postponement.
D)improved forecasting.

Question 69

As the number of order cycles per season increases,

A)the leftover inventory increases,but at a decreasing marginal rate.
B)the leftover inventory increases and at an increasing marginal rate.
C)the leftover inventory decreases,and at an increasing marginal rate.
D)the leftover inventory decreases,but at a decreasing marginal rate.

Question 70

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

A)a larger total order placed than when they could order only once per bagpipe season.
B)a slightly larger average overstock to be disposed of at the end of bagpipe season than when they could order only once.
C)a lower profit than when they could order only once during bagpipe season.
D)no overstocked bagpipes at the end of the first order period.

Question 71

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

A)a larger total order placed than when they could order only once per bagpipe season.
B)the same product availability at a lower level of inventory than when they could order only once per bagpipe season.
C)a slightly larger average overstock to be disposed of at the end of bagpipe season than when they could order only once.
D)a lower profit than when they could order only once during bagpipe season.

Question 72

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

A)the lower cost production method with postponement and produces the portion of demand that is uncertain using postponement.
B)the lower cost production method without postponement and produces the portion of demand that is uncertain using postponement.
C)the higher cost production method with postponement and produces the portion of demand that is uncertain using postponement.
D)the higher cost production method without postponement and produces the portion of demand that is uncertain using postponement.

Question 73

________ 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.

A)Shortened forecasting window
B)Quick response
C)Postponement
D)Tailored sourcing

Question 74

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

A)match supply and demand and increase cost.
B)match supply and demand and increase profitability.
C)match supply and demand and decrease profitability.
D)match supply and demand and decrease product availability.

Question 75

Postponement may reduce overall profits for a firm if a single product contributes the majority of the demand because

A)the increased manufacturing expense due to postponement outweighs the small benefit the aggregation provides in this case for the dominant product.
B)the decreased manufacturing expense due to aggregation outweighs the small benefit the postponement provides in this case for the dominant product.
C)the decreased manufacturing expense due to postponement outweighs the small benefit the aggregation provides in this case for the dominant product.
D)the increased manufacturing expense due to aggregation outweighs the small benefit the postponement provides in this case for the dominant product.

Question 76

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

A)higher than the production cost without it.
B)lower than the production cost without it.
C)very stable.
D)equal to the production cost without it.

Question 77

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,what would the expected profit be per day?

A)$29,443
B)$31,382
C)$35,000
D)$30,657

Question 78

Postponement is

A)not very effective if a large fraction of demand comes from multiple products.
B)not very effective if a small fraction of demand comes from a single product.
C)only effective if a large fraction of demand comes from a single product.
D)effective even if a large fraction of demand comes from a single product.

Question 79

________ may reduce overall profits for a firm if a single product contributes the majority of the demand.

A)Shortened forecasting window
B)Quick response
C)Postponement
D)Tailored sourcing

Question 80

When a firm uses production with postponement to satisfy a part of its demand with the rest being satisfied without postponement,it is using

A)adjustable postponement.
B)flexible postponement.
C)managed postponement.
D)tailored postponement.