Chapter 12 Flashcards
Inventory carried for the purpose of satisfying demand that exceeds the amount forecasted for a given period is
safety inventory.
Safety inventory is carried because
demand forecasts are uncertain.
The trade-off that a supply chain manager must consider when planning safety inventory is
increasing product availability versus increasing inventory holding costs.
The issue of product availability and the level of safety inventory is particularly significant in industries where
product life cycles are short and demand is very volatile.
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?
Dell
The fraction of product demand that is satisfied from product in inventory is the
product fill rate.
The fraction of replenishment cycles that end with all the customer demand being met is the
cycle service level (CSL).
The distinction between product fill rate and order fill rate is:
not significant in a single product situation.
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
continuous review.
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
periodic review.
As the safety inventory is increased,
both fill rate and cycle service level increase.
For the same safety inventory, an increase in lot size
decreases both the fill rate and the cycle service level.
The required safety inventory
grows rapidly with an increase in the desired product availability.
The required safety inventory
increases with a decrease in the lead time and the standard deviation of periodic demand.
A goal of any supply chain manager is to
reduce the level of safety inventory required in a way that does not adversely affect product availability.
As the uncertainty of supply or demand ________, the required level of safety inventories ________.
grows, increases
The ________ is the average units of demand that are not satisfied from inventory in stock per replenishment cycle.
Expected Shortage per Replenishment Cycle (ESC)
Both ________ and ________ increase as the safety inventory is increased.
fill rate, cycle service level
Lead time is the gap between
when an order is placed and when it is received.
The coefficient of variation measures
the size of the uncertainty relative to demand.
Avon Barksdale’s operation uses large quantities of prepaid cell phones, on average 500 per week with a standard deviation of 45. The lead time for their own brand of prepaid cell phones is two weeks and they have a lot size of 125 phones.
What is the standard deviation of demand during their lead time?
64 phones
Avon Barksdale’s operation uses large quantities of prepaid cell phones, on average 500 per week with a standard deviation of 45. The lead time for their own brand of prepaid cell phones is two weeks and they have a lot size of 125 phones.
Suppose Mr. Barksdale sets his reorder point at 1100 phones. What is his average cell phone inventory?
162.5 phones