Deck 13: Determining the Optimal Level of Product Availability

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

In volume-based tailored sourcing,the predictable part of a product's demand is produced at a flexible facility,whereas the uncertain portion is produced at an efficient facility.

Question 5

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

Question 6

The level of product availability is also referred to as the customer service level.

Question 7

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

Question 8

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

Question 9

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 10

Supply chain managers are able to increase their forecast accuracy as lead times decrease,which allows them to better match supply with demand and increase supply chain profitability.

Question 11

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 12

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

Question 13

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

Question 14

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

Question 15

Tailored sourcing may be volume-based or product-based depending on the source of uncertainty.

Question 16

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

Question 17

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

Question 18

There is a cost associated with postponement because the production cost using postponement is typically lower than the production cost without it.

Question 19

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

Question 20

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 21

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 22

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 23

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 24

Which of the following is not a managerial lever to increase profitability?

A) Increasing the salvage value of each unit
B) Decreasing the margin lost from a stockout
C) Reducing demand uncertainty
D) Reducing the level of product availability below optimal

Question 25

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 26

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 or profitability.

Question 27

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) Reduce the level of cycle inventory

Question 28

In product-based tailored sourcing,low-volume products with uncertain demand are obtained from a flexible source,while high-volume products with less demand uncertainty are obtained from an efficient source.

Question 29

A supply chain can use a high level of product availability to

A) improve its responsiveness and attract customers.
B) reduce costs for the supply chain by reducing inventories.
C) increase revenues for the supply chain by increasing sales.
D) Only A and C are true.

Question 30

With reduced demand uncertainty,a supply chain manager can

A) increase both overstocking and understocking.
B) increase overstocking and reduce understocking.
C) reduce overstocking and increase understocking.
D) reduce both overstocking and understocking.

Question 31

Which of the following is not a situation involving the trade-off between the cost of overstocking and the cost of understocking?

A) Seasonal products where all leftover items must be disposed of at the end of the season
B) Continuously stocked items where demand during stockout is backlogged
C) Continuously stocked items where demand during stockout is lost
D) Continuously stocked items where demand during stockout is redirected

Question 32

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 33

The key factors that influence the optimal level of product availability do not include

A) the cost of overstocking the product.
B) the cost of stocking the product.
C) the cost of understocking the product.
D) All of the above are key factors.

Question 34

Which of the following would be a strategy to increase the salvage value of an unsold product?

A) Discarding the unused material
B) Selling unsold product to an outlet store
C) Keeping the product in inventory until it sells
D) Reduce the level of cycle inventory

Question 35

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 36

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 37

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

Question 38

A supply chain can use a high level of product availability to improve its responsiveness and attract customers,thus increasing revenue for the supply chain.

Question 39

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 40

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

Question 41

A manager can reduce demand uncertainty via the following means EXCEPT

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

Question 42

Which of the following is not a consequence of being able to place a second order during the season for a seasonal product?

A) The expected total quantity ordered during the season with two orders is less.
B) The average overstock to be disposed of at the end of the sales season is less.
C) The profits are higher.
D) The average inventory level is higher.

Question 43

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 44

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 45

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 46

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 47

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 48

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 49

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 50

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 51

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 52

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.

Question 53

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 54

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 55

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 56

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 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

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 59

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 60

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 61

Explain the relationship between product availability and supply chain profitability.

Question 62

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 63

Describe the two key factors that influence the optimal level of product availability within a supply chain.

Question 64

A manufacturer of lawn care equipment has introduced a new product.The anticipated demand is normally distributed with a mean of μ = 100 and a standard deviation of σ = 50.Each unit costs $75 to manufacture and the introductory price is to be $125 to achieve this level of sales.Any unsold units at the end of the season are unlikely to be very valuable and will be disposed of in a fire sale for $25 each.It costs $10 to hold a unit in inventory for the entire season.What is the cost of overstocking? What is the cost of understocking? What is the optimal cycle service level? How many units should be manufactured for sale?

Question 65

A manager can reduce demand uncertainty via the following means EXCEPT

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

Question 66

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 67

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 68

________ is the set of actions a supply chain takes to reduce the replenishment lead time.

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

Question 69

Explain how tailored postponement can improve profitability.

Question 70

Explain how tailored sourcing can be used to improve profitability.

Question 71

________ is the set of actions a supply chain takes to reduce the replenishment lead time.

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

Question 72

Decribe managerial levers to increase profitability within a supply chain.

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

________ 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 75

Discuss the advantages and disadvantages of quick response.

Question 76

Describe the approaches a manager can use to reduce demand uncertainty.

Question 77

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 78

In the previous problem,the manufacturer performs additional market research.Based on this research,they determine that they can increase the price to $150 and are able to reduce the standard deviation of the forecast to σ = 30.At the same time,they have made an arrangement with an outlet store that will purchase unsold equipment for $60 each.How will these changes affect the cost of overstocking,cost of understocking,optimal cycle service level and optimal order size?

Question 79

________ 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 80

________ 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