Question 1

Both ________ and ________ increase as the safety inventory is increased.
A) fill rate, cycle service level
B) lead time, cycle service level
C) fill rate, lead time
D) reorder point, lead time

Accepted Answer

Fill rate is the percentage of customer demand that is met directly from on-hand inventory without backordering. Cycle service level is the probability that there is no stockout during the replenishment lead time. As safety inventory increases, the likelihood of having enough inventory to satisfy customer demand increases, thereby increasing both fill rate and cycle service level. Therefore, choice A is the best option.

Question 2

The required safety inventory
A) increases with an increase in the lead time and the standard deviation of periodic demand.
B) decreases with an increase in the lead time and the standard deviation of periodic demand.
C) remains stable with an increase in the lead time and the standard deviation of periodic demand.
D) increases with a decrease in the lead time and the standard deviation of periodic demand.

Accepted Answer

The safety inventory is calculated as a function of lead time and standard deviation of periodic demand. As the lead time or standard deviation increases, so does the safety inventory required to ensure there is no stockout. Therefore, option A is correct as it states that the required safety inventory increases with an increase in the lead time and the standard deviation of periodic demand.

Question 3

A company that tracks inventory and places an order for a lot size Q when the inventory declines to the reorder point (ROP) is using
A) continuous review.
B) daily review.
C) occasional review.
D) periodic review.

Accepted Answer

The scenario described in the question is an example of continuous review, where the inventory is constantly monitored, and an order is placed when it reaches the reorder point. Daily review is not mentioned and may not be necessary for all businesses. Occasional review and periodic review are both examples of inventory management systems where the inventory is reviewed at set intervals rather than continuously, which is not the case here.

Question 4

The distinction between product fill rate and order fill rate is:
A) not significant in a single product situation.
B) significant in a single product situation.
C) not significant when a firm is selling multiple products.
D) significant when a firm is selling multiple products.

Accepted Answer

In a single product situation, both product fill rate and order fill rate essentially measure the same thing, so the distinction is not significant.

Question 5

The fraction of product demand that is satisfied from product in inventory is the
A) customer fill rate.
B) product fill rate.
C) order fill rate.
D) cycle service level (CSL).

Accepted Answer

The answer of The fraction of product demand that is...

Question 6

The ability to provide a high level of product availability to customers while carrying very low levels of safety inventory in its supply chain has been a key to success at which company?
A) Compaq
B) Hewlett-Packard
C) Dell
D) Packard-Bell

Accepted Answer

Dell is known for its direct-to-consumer business model, which allows for customization of products and a quick response to customer demand. This model also reduces the need for holding large amounts of inventory, which helps to keep costs low and improve efficiency.

Question 7

A company that checks inventory status at regular periodic intervals and places an order to raise the inventory level to a specified threshold is using
A) continuous review.
B) daily review.
C) occasional review.
D) periodic review.

Accepted Answer

The company described in the question is using periodic review, as they are checking inventory status at regular intervals (rather than continuously or daily) and placing an order to raise inventory levels to a specified threshold.

Question 8

Safety inventory is carried because
A) demand forecasts are accurate.
B) demand forecasts are uncertain.
C) adequate supplies are available.
D) excess product was manufactured.

Accepted Answer

Safety inventory is carried to account for the uncertainty of demand forecasts. This allows companies to have a buffer in case demand exceeds expectations or there are unexpected disruptions in supply.

Question 9

A goal of any supply chain manager is to
A) increase the level of safety inventory required in a way that does not adversely affect product availability.
B) increase the level of safety inventory required regardless of the effect on product availability.
C) reduce the level of safety inventory required regardless of the effect on product availability.
D) reduce the level of safety inventory required in a way that does not adversely affect product availability.

Accepted Answer

The goal of any supply chain manager is to reduce the level of safety inventory required but in a way that does not adversely affect product availability. This helps to minimize inventory carrying costs while still ensuring that products are available when needed. Increasing the level of safety inventory regardless of the effect on product availability would increase carrying costs unnecessarily. Similarly, reducing the level of safety inventory without regard for product availability could lead to stockouts and lost sales.

Question 10

Lead time is the gap between
A) when an order is placed and when it is received.
B) when an order is received and when it is put away.
C) when an order is received and when it is used.
D) when an order is acknowledged and when it is received.

Accepted Answer

Lead time refers to the amount of time it takes for an order to be received after it has been placed. Therefore, the correct choice is A, which specifically mentions the gap between when an order is placed and when it is received.

Question 11

The issue of product availability and the level of safety inventory is particularly significant in industries where
A) product life cycles are short and demand is stable.
B) product life cycles are short and demand is very volatile.
C) product life cycles are long and demand is stable.
D) product life cycles are long and demand is very volatile.

Accepted Answer

In industries with short product life cycles and highly volatile demand, it is important to have a high level of safety inventory to ensure that the product is always available for customers. This is because sudden surges in demand or unexpected disruptions in the supply chain can quickly lead to stockouts and lost sales. In contrast, industries with long product life cycles and stable demand may be able to maintain lower levels of safety inventory, as supply and demand can be more accurately predicted and disruptions are less likely to occur.

Question 12

As the safety inventory is increased,
A) fill rate increases and cycle service level decreases.
B) fill rate decreases and cycle service level increases.
C) both fill rate and cycle service level increase.
D) both fill rate and cycle service level decrease.

Accepted Answer

Increasing safety inventory leads to higher product availability, which improves both the fill rate (the percentage of customer demand met without stockouts) and the cycle service level (the probability of not having a stockout in a given cycle).

Question 13

The coefficient of variation measures
A) the accuracy of the demand forecast.
B) the size of the uncertainty relative to demand.
C) the relevance of cycle inventory to demand.
D) the relative certainty of the forecast.

Accepted Answer

The coefficient of variation (CV) measures the size of the uncertainty relative to demand. It is calculated as the standard deviation of demand divided by the mean demand. A high CV indicates a high level of variability in demand, which can make forecasting and inventory management more challenging. Therefore, option B is the correct answer.

Question 14

The fraction of replenishment cycles that end with all the customer demand being met is the
A) customer fill rate.
B) product fill rate.
C) order fill rate.
D) cycle service level (CSL).

Accepted Answer

The cycle service level (CSL) is the fraction of replenishment cycles that end with all the customer demand being met, reflecting the probability that stock will be sufficient to cover demand in a single cycle.

Question 15

As the uncertainty of supply or demand ________, the required level of safety inventories ________.
A) grows, increases
B) increases, decreases
C) decreases, grows
D) decreases, increases

Accepted Answer

As uncertainty of supply or demand grows, the required level of safety inventories must increase to account for greater risk of stockouts or shortages.

Question 16

The trade-off that a supply chain manager must consider when planning safety inventory is
A) increasing product availability versus increasing inventory holding costs.
B) decreasing product availability versus decreasing inventory holding costs.
C) increasing product availability versus raising the level of safety inventory.
D) decreasing product availability versus decreasing the level of safety inventory.

Accepted Answer

The trade-off when planning safety inventory is between increasing product availability and increasing inventory holding costs. Safety inventory is inventory held as a buffer to protect against uncertainties in demand or supply. Increasing the level of safety inventory can increase product availability since there is more inventory to use when needed, but it also results in increased inventory holding costs. Therefore, supply chain managers must balance the benefits of increased product availability with the costs of holding more inventory when deciding on the appropriate level of safety inventory.

Question 17

The required safety inventory
A) grows rapidly with a decrease in the desired product availability.
B) grows rapidly with an increase in the desired product availability.
C) decreases with an increase in the desired product availability.
D) remains stable with an increase in the desired product availability.

Accepted Answer

The safety inventory grows rapidly with an increase in the desired product availability because the higher the availability, the higher the risk of stockout and the larger the safety inventory needs to be to prevent it.

Question 18

The ________ is the average units of demand that are not satisfied from inventory in stock per replenishment cycle.
A) ROP
B) ESC
C) EOQ
D) CSL

Accepted Answer

The term that fits the definition given is ESC (Estimated Shortage Cost). ROP (Reorder Point) is the level of inventory at which a new order is placed, EOQ (Economic Order Quantity) is the optimal order quantity that balances holding costs and ordering costs, and CSL (Cycle Service Level) is the probability of meeting demand during a replenishment cycle.

Question 19

Inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period is
A) cycle inventory.
B) demand inventory.
C) safety inventory.
D) security inventory.

Accepted Answer

Safety inventory is the extra inventory that is carried to meet unexpected demand fluctuations or supply chain disruptions. It acts as a buffer to prevent stock-outs and loss of sales due to unforeseen events. It is different from cycle inventory, which is the regular inventory required to meet expected demand, and demand inventory, which is the inventory held for specific customer orders. Security inventory is not a common term used in inventory management.

Question 20

For the same safety inventory, an increase in lot size
A) decreases the fill rate but not the cycle service level.
B) increases the fill rate but not the cycle service level.
C) decreases both the fill rate and the cycle service level.
D) increases both the fill rate and the cycle service level.

Accepted Answer

Increasing lot size means ordering larger quantities of inventory, which reduces the number of orders placed and increases the time between orders. This reduces the frequency of stockouts and increases the fill rate. However, the cycle service level is not affected as it is determined by the safety inventory level, which remains the same.

Quiz 12: Managing Uncertainty in a Supply Chain: Safety Inventory

Both and increase as the safety inventory is increased.

The required safety inventory

A company that tracks inventory and places an order for a lot size Q when the inventory declines to the reorder point (ROP) is using

The distinction between product fill rate and order fill rate is:

The fraction of product demand that is satisfied from product in inventory is the

The ability to provide a high level of product availability to customers while carrying very low levels of safety inventory in its supply chain has been a key to success at which company?

A company that checks inventory status at regular periodic intervals and places an order to raise the inventory level to a specified threshold is using

Safety inventory is carried because

A goal of any supply chain manager is to

Lead time is the gap between

The issue of product availability and the level of safety inventory is particularly significant in industries where

As the safety inventory is increased,

The coefficient of variation measures

The fraction of replenishment cycles that end with all the customer demand being met is the

As the uncertainty of supply or demand , the required level of safety inventories .

The trade-off that a supply chain manager must consider when planning safety inventory is

The required safety inventory

The ________ is the average units of demand that are not satisfied from inventory in stock per replenishment cycle.

Inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period is

For the same safety inventory, an increase in lot size