Exam 11: Managing Inventory Throughout the Supply Chain

Draw a graph that displays both cycle and safety stock for four inventory cycles. Label all elements of the graph and explain the shape and magnitude of each curve.

The restocking level increases as the service level falls.

The value of goods on a "per unit" basis upstream in a supply chain is greater than the value of those same goods downstream in a supply chain.

Degan routinely drove the 400-mile round trip to his favorite grocery store to stock up on bread, which cost $1.50 per loaf. Running out would be disastrous - an unplanned trip to this store would mean a custom order that would run $7.75 per loaf. Overstocking wasn't a big issue, he could sell it to his teaching partner for $0.10 per loaf. With a demand that is normally distributed with a mean of 125 and standard deviation of 15, what is Degan's optimal purchase quantity on his next trip to the store?

The inventory that companies hold to protect themselves against uncertainties in either demand or replenishment time is called:

Unsure whether he should pick up a bunch of cilantro before heading home, the commuter weighed his options. If he bought a bunch and they didn't need it, he would likely have lost the 79 cents because it would surely spoil. If he didn't buy it, this would necessitate another trip to the grocery store, which would cost $3.79 in gasoline. The ________ cost is $3.79.

Buying advance tickets for the Giraffe Massacre concert on New Year's Eve saves the buyer one-tenth of one percent on the face value of the tickets. It would be wise to buy tickets well in advance of the concert date.

A catfish bait manufacturer uses a secret blend of ingredients to make their infamous bait. One of these ingredients, we'll call it X for proprietary reasons, is the major component in the mixture. X is ordered in 55 gallon barrels from out of state and is used at the rate of 800 barrels per year. Each order that is placed with the supplier costs $45 to process. Storage space is at a premium on the manufacturing floor and out in the yard, so their annual cost to hold inventory is $80 per barrel. The owner's brother-in-law provides transportation services and his record has been less than stellar, so lead time has averaged 6 days with a standard deviation of 3 days. Stopping the process would be disastrous, so the plant manager has set a 99% service level on the reorder point. What is the best order quantity? What is the total cost at this reorder point? What is the reorder point? What is the cost of holding this safety stock?

The mismatch between the timing of customer demand and supply chain lead times is what drives the need for:

A target service level is the point where the expected cost of a shortage equals the expected excess cost.

A company using the basic EOQ model has annual ________ costs equal to annual ________ costs.

In order to find the lowest cost ordering policy in a quantity discount model, you must compare the holding cost, ordering cost, and the price per unit for various order quantities.

In a periodic review system, each time inventory is replenished it is supplemented up to the ________.

Decreases in the standard deviation of demand reduce the amount of safety stock that should be held.

Tata Motors assembles cars from their own parts and subassemblies and also controls the mining and fabrication of the materials used to create those parts. When Anand ordered his luxury sedan with the platinum dashboard he knew he wouldn't be taking delivery of his dream car the next week. Rather, he would be waiting a while thanks to:

A company that orders at their economic order quantity should experience a decline in the number of orders per year as their order quantity increases if their annual demand stays constant.

The food engineers at Moria Foods have developed a new variety of banana they have named the "mayfly banana" which holds perfect ripeness for exactly one day before becoming a black-skinned sack of mush. Which of these actions will result in a lower order quantity from the many retail establishments clamoring to stock up on this new foodstuff?

A university orders all office supplies, including red grading pens, out of a catalog from the same supplier. Conservative estimates of the demand for these red pens are 12,000 pens per year. There is a $25 charge for placing an order and the university has a $10 annual cost for holding these pens. Prices for the pens are based on the quantity purchased, so if less than 100 are ordered, the unit price is $2.50, if 100 to 299 are ordered, the unit price is $2.40, if 300 to 499 are ordered, the unit price is $2.30, and if 500 or more are ordered, the unit price is $2.20. What order quantity will result in the lowest total annual cost to the university?

Unsure whether he should pick up a bunch of cilantro before heading home, the commuter weighed his options. If he bought a bunch and they didn't need it, he would likely have flushed the 79 cents because it would surely spoil. If he didn't buy it, this would necessitate another trip to the grocery store, which would cost $3.79 in gasoline. The ________ cost is $0.79.

Warren hesitated as he read the fast food menu, unsure whether he should supersize the orders of delicious golden French fries. As the office lunch boy, he was responsible for buying enough food to keep his coworkers satiated during the rest of the work day. Supersizing would increase his cost from $0.99 to $1.59 and just might provide his colleagues the nutrition they needed to make it through the second half of their day at the office. Of course, if they finished their hamburger and the usual amount of fries, Warren would simply throw the extra ones away. However, if he failed to supersize the orders, he would have to purchase candy bars during the afternoon and they weren't exactly giving them away in the break room vending machines. Each hungry colleague would likely need two candy bars, which sold for $1.25 each. With a demand that is normally distributed with a mean of 15 and standard deviation of five, what is Warren's optimal supersize decision?