When a firm places orders in lot sizes that are much larger than the lot sizes in which demand arises,
A) variability of orders is minimized up the supply chain.
B) variability of orders is magnified up the supply chain.
C) suppliers gain better visibility of consumer demand.
D) suppliers gain a more stable demand pattern.
E) none of the above

Question

Quizplus · Accepted Answer

When a firm places orders in lot sizes that are much larger than the lot sizes in which demand arises, it amplifies the variability of orders up the supply chain. This is because the larger the order size, the greater the uncertainty and risk for the supplier. Thus, the suppliers may need to adjust their production schedules, inventory levels, and resources to meet the fluctuating demands of the buyer, which can lead to higher costs, delays, and inefficiencies. Moreover, if the buyer cancels or changes the order, the supplier may incur significant losses and disruptions. Therefore, it is advisable for the buyer to match the order size to the demand size as closely as possible to minimize the risk and variability for all parties involved.

When a Firm Places Orders in Lot Sizes That Are