Scenario 9.1
Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment.
-Refer to Scenario 9.1. With the change in lead time, the pipeline inventory will:
A) decrease by 75 units.
B) increase by 50 units.
C) decrease by 25 units.
D) increase by 25 units.

Question

Quizplus · Accepted Answer

Pipeline inventory is calculated as demand during lead time. Originally, it was 75 units/week * 3 weeks = 225 units. With the reduced lead time of 2 weeks, it becomes 75 units/week * 2 weeks = 150 units. Therefore, the pipeline inventory decreases by 75 units (225 - 150 = 75).

Scenario 9.1 Shipments of Product a from a Distribution Center to a to a Retailer