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Operations Management 2nd International Edition Gerard Cachon, Christian Terwiesch - Solutions
A company wants to use regression analysis to forecast the demand for the next quarter. In such a regression model, demand would be the independent variable. True or false? a. True b. False
Consider the data in the following table and answer these questions: How would you estimate the passenger volume for the coming year? What is the role of trends and seasonality? What other variables do you expect to influence the number of international travelers?The U.S. Department of
Two servers in a restaurant predict how many guests will come for dinner in the next four days. The first server predicts the number of guests to be 23 for day 1, 35 for day 2, 30 for day 3, and 28 for day 4. The second server predicts 26, 27, 28, and 29 for the four respective days. The actual
When creating a time series–based forecast for the amount of soda to be sold in the cafeteria next week, which data sources can you include in your forecasting process? a. The opinion of the principal b. Old demand data c. Data about upcoming sports events d. The age of the
A firm sells a product whose demand over the next couple of years will be stable (so the order-up-to model is used to manage its inventory). When the demand uncertainty is small (for example, the weekly demand has a mean of 100 and a standard deviation of 5), the main benefit of reducing the lead
Location pooling is most effective at generating which of the following changes to performance objectives? a. Increasing the gross margin. b. Increasing the target in-stock probability. c. Decreasing on-order inventory. d. Decreasing days of supply of on-hand inventory.
Which of the following is a strategic decision for a grocery retailer?a. The number of boxes of cereal to order in the first week of a month. b. Whether to open new stores that have twice the square footage of current stores. c. Whether or not to hire Bob for a store manager
Anna Litic, a new supply chain manager at High Precision Inc. (HP), decides to check some data on the supply chains she manages. She discovers that HP’s in-transit inventory of electronic components from its Tacoma, Washington, factory to its Asian distribution center (DC) has increased from two
Suppose inventory is managed using the order-up-to model. Which of the following actions will certainly lead to a higher order-up-to level? In all cases, assume the characteristics of the demand process do not change. I. Increase in the target in-stock probability (for the same lead
Suppose the order-up-to model is used to manage inventories. The firm is planning changes that will reduce the lead time to receive replenishments because the firm anticipates that the coefficient of variation of demand will increase even though mean demand per period remains the same. What can be
In the order-up-to model, assume that the mean of demand in a period remains the same and the target in-stock probability is kept at a constant level. If the demand uncertainty (the standard deviation of demand in each period) increases, then a. Expected on-hand inventory increases. b.
A firm uses the order-up-to model to manage its inventory. It wants to increase its in-stock probability while decreasing its holding costs (i.e., reducing its average inventory). Which of the following actions will help to achieve this goal? (Consider each action independently.) I. Decrease
Soap and Towels is a retailer of home goods. They receive inventory from their supplier with a 2-week lead time. Assume they order weekly, and they use the order-up-to model for choosing base stock levels. Weekly demand for a merino towel can be modeled with a Poisson distribution with mean
Suppose in the order-up-to model the target in-stock probability is .95 and demand across periods is independent and normally distributed. If the lead time is doubled but the target in-stock probability remains .95, what happens to the order-up-to level? a. It more than doubles (increases by
Soap and Towels is a retailer of home goods. They receive inventory from their supplier with a 2-week lead time. Assume they order weekly, and they use the order-up-to model for choosing base stock levels. A peppermint soap sells on average one box every 5 weeks. a. How many boxes of the
Demand each period is normally distributed and an order-up-to model is used to decide order quantities. Which of the following influences the chosen order-up-to level (i.e., a change in which of the following would change the chosen order-up-to level)? I. The mean of demand in one
Vetox sells industrial chemicals. One of their inputs can be purchased in either jugs or barrels. A jug contains one gallon, while a barrel contains 55 gallons. The price per gallon is the same with either container. Vetox is charged a fixed amount per order whether it purchases jugs or barrels.
If the target in-stock probability increases, then the expected time between stockouts a. Increases. b. Remains the same. c. Decreases. d. Could increase or decrease
Suppose inventory is managed using the order-up-to model. The inventory position is 20 and demand in the last period was 10. What is the target in-stock probability? a. 95 percent. b. 96 percent. c. 97 percent. d. 98 percent. e. 99 percent. f. Could be any of the above
A retailer is considering two possible definitions of “in stock”: I. A product is in stock if it has at least one unit on hand at the end of the day. II. A product is in stock if it has satisfied all demand during a day. For a fixed order-up-to level, which definition yields the
Suppose the order-up-to model is used. The probability that you end any given period with no on-hand inventory equals a. The in-stock probability. b. The critical ratio. c. The gross margin. d. The ratio of inventory turns to days of supply. e. The stockout probability.
In the order-up-to model, the standard deviation of the order quantities a. Is higher than the standard deviation of demand in one period. b. Is lower than the standard deviation of demand in one period. c. Is equal to the standard deviation of demand in one period. d. Cannot be
A navy spare parts depot carries an electronic controller for a radar guidance system. The base stock level for this controller is 4. The lead time for this controller is 5 weeks. They are about to place a replenishment order. They have 3 of these controllers on on-order and 2 backordered (with
A firm manages its inventory with an order-up-to model. Each period is one day, the lead time is two days, the order-up-to level is 10, and its inventory position at the start of a day (before it submits an order for that day) is –4. Which of the following statements is definitely true? a.
A retailer uses the order-up-to model to manage inventory of an item in a store. The lead time for replenishments is four weeks and it can place orders weekly. Weekly demand is Poisson with mean 0.10 unit. Its order-up-to level is five and unfilled demand is backordered. What is the coefficient of
For products with slow-moving demand—for example, one unit per week—the Poisson distribution is likely to be a better model for demand than the normal distribution because (choose the best answer) a. The Poisson’s standard deviation is equal to the square root of its mean. b. The
Assume a firm implements an order-up-to inventory model with an order-up-to level of 10. The lead time is two periods and demand is normally distributed. Which of the following is definitely not true? a. The last order was 12. b. The backorder in the previous period was 14. c. There
Demand in each period follows the same normal distribution (i.e., there is one demand distribution that represents demand in any single period). Assuming demand is independent across periods, which of the following statements about the standard deviation of demand over five periods is true? a.
1. How much does Warkworth incur in holding costs each year with its current system of delivering directly from the factory to its stores? 2. Say Warkworth opens a distribution center in southern California. How much would it incur in holding costs each year with that strategy? 3. Say
A firm implements the order-up-to model with weekly ordering. In week 11, it observes that demand is much lower than expected demand. At the start of week 12 (before it orders), it decides to change its forecast of demand per week and consequently it lowers its order-up-to level. Its order in week
Demand in each period follows the same normal distribution (i.e., there is one demand distribution that represents demand in any single period). Assuming demand is independent across periods, which of the following statements about mean demand over five periods is true? a. It equals the mean
Product X’s demand is normally distributed with mean 150 and standard deviation 50. Product Y’s demand is also normally distributed with a mean of 150 and a standard deviation of 50. The sum of demand for these two products is normally distributed with a mean of 300 and a standard deviation of
Each day, QBlitz, a Seattle-based startup, offers a single product through its website. The product is available for order only on one day, and no other products are available during that day. To add to this odd selling strategy, QBlitz does not post prices for its products. Instead, for each
For which of the following products is there the highest probability that demand is within 50 percent of the mean of the demand forecast? a. Mean = 1000, standard deviation = 200 b. Mean = 1000, standard deviation = 300 c. Mean = 2000, standard deviation = 300 d. Mean = 2000,
A change in which of the following results in a change in the maximum profit in a newsvendor setting? a. The revenue received from salvaging inventory. b. The regular selling price of the product. c. The standard deviation of the demand forecast. d. The coefficient of variation
Share&Care is a nonprofit car-share company that rents cars. When customers make a reservation, they specify their pickup time and the number of time slots they will hold the vehicle, where each time slot equals 15 minutes. For example, if the pickup time is 1 p.m., then possible drop-off
A change in which of the following does not result in a change in the mismatch costs incurred by a newsvendor? a. The quantity ordered. b. The revenue received from salvaging inventory. c. The regular selling price of the product. d. The coefficient of variation of the demand
Which of the following changes in the in-stock probability increases the order quantity the most? a. An increase in the in-stock probability from 70 percent to 80 percent. b. An increase in the in-stock probability from 70 percent to 85 percent. c. An increase in the in-stock
Suppose the newsvendor model is used to manage inventory. Which of the following can happen when the order quantity is increased by one unit? a. Expected sales increases by more than one unit. b. Expected leftover inventory increases by more than one unit. c. Expected sales decrease
A retailer has two merchandizers, Sue and Bob, who are responsible for setting order quantities for the products they manage. For all of their products, the critical ratio is .7 and the coefficient of variation of their demand forecasts is 0.35. At the end of the season, Sue is proud to report that
Goop Inc. needs to order a raw material to make a special polymer. The demand for the polymer is forecasted to be normally distributed with a mean of 250 gallons and a standard deviation of 100 gallons. Goop sells the polymer for $25 per gallon. Goop purchases raw material for $10 per gallon and
A company uses the newsvendor model to manage its inventories and faces normally distributed demand with a coefficient of variation of 0.75. The company decides to order a quantity that exactly equals the mean of its demand forecast. Which of the following is true regarding this company’s
A newsvendor faces normally distributed demand and the critical ratio is .8. If the profit-maximizing quantity is ordered, which of the following statements is true? a. Expected sales are less than expected demand. b. Expected sales are greater than expected demand. c. Expected sales
Suppose the newsvendor model describes a firm’s operations decision. Is it possible to have positive stockout probability and positive expected leftover inventory? Choose the best answer. a. No. If there is leftover inventory, then a stockout doesn’t occur. b. No. If the stockout
Consider two products, X and Y, that have identical cost, retail price, and demand parameters and the same short selling season (the summer months from May through August). The newsvendor model is used to manage inventory for both products. Product X is to be discontinued at the end of the season
Monsanto sells genetically modified seed to farmers. It needs to decide how much seed to put into a warehouse to serve demand for the next growing season. It will make one quantity decision. It costs Monsanto $8 to make each kilogram (kg) of seed. It sells each kg for $45. If it has more seed than
A newsvendor orders the quantity that maximizes expected profit for two products, X and Y. The critical ratio for both products is .8. The demand forecast for both products is 9000 units and both are normally distributed. Product X has more uncertain demand in the sense that it has the larger
Which of the following is NOT true about the distribution function for a normal distribution? a. It ranges from 0 to 1. b. It increases as the quantity increases. c. It generally has a bell shape when graphed. d. It returns the probability that the outcome from the normal
1. To maximize LeClub’s expected profit, how much of each of the wines in Table 13.11 should Zanella order? 2. If Zanella orders the quantity that maximizes expected profit, for each wine what is the probability that it will have inventory left over that must be discounted? 3. From the
Sarah is a buyer for a department store. A supplier offers her a 5 percent discount if she triples her usual order quantity. Which of the following best explains why Sarah should take the deal? a. Even though the increase in the operating costs is likely to exceed the benefit of the 5 percent
If a firm wanted to reduce the annual EOQ cost as a percentage of the annual purchase cost by 50 percent, how would the demand rate have to change? a. Decrease by 50 percent. b. Remain unchanged. c. Increase by 50 percent. d. Double. e. Quadruple.
Evana Blanca owns a construction firm that builds beautiful concrete walls with reinforced steel. Her holding costs are 25% per year. a. Evana is charged $400 per delivery of steel rebar. Each rebar costs $200. She needs 150 rebars per week. How many rebars should she purchase from the
If the order quantity doubles but the flow rate remains constant, what happens to the sum of ordering and holding costs? a. Decreases by 50 percent. b. Decreases by less than 50 percent. c. Remains unchanged. d. Increases by less than 50 percent. e. Increases by 50 percent.
A firm evaluates its EOQ quantity to equal 180 cases, but it chooses an order quantity of 200 cases. Relative to the order quantity of 180 cases, the order quantity of 200 cases has a. Higher ordering cost and higher holding cost. b. Higher ordering cost and lower holding cost. c.
If the order quantity doubles but the flow rate remains constant, what happens to the average amount of time a unit spends in inventory? a. Decreases by more than 50 percent. b. Decreases by 50 percent. c. Remains unchanged. d. Increases by 50 percent. e. Increases by more
If the order quantity doubles, what happens to the frequency of orders (i.e., the number of orders submitted per unit of time)? a. Decreases by more than 50 percent. b. Decreases by 50 percent. c. Remains unchanged. d. Increases by 100 percent or doubles. e. Increases by
The EOQ minimizes the sum of the ordering cost and which of the following costs? a. Stockout cost b. Holding cost c. Purchasing cost d. Quality cost
Which of the following is NOT an assumption of the EOQ model? a. It is possible to receive a purchase discount if the order quantity is sufficiently large. b. There is a fixed cost to submit each order that is independent of the amount ordered. c. Demand occurs at a constant rate per
Over time, consumers have less of a need for a broad product offering. How does this shift in preferences alter the desirability of make-to-stock production relative to make-to-order production? a. It increases it; that is, make-to-stock becomes more desirable. b. It has no
Which of the following are likely to be symptoms of the bullwhip effect in a supply chain comprised of consumers, a retailer, a wholesaler, and a factory? I. Variability of orders from the retailer to the wholesaler is higher than variability of orders from the wholesaler to the
Retailers order in full truckload quantities from a distributor. Suppose, due to a slowdown in the economy, there is an industrywide decline in demand (i.e., each retailer experiences a reduction in its sales). If retailers continue to order in full truckload quantities, what will happen to the
Sorlini Pasta sells pasta throughout Italy. Which of the following is the strongest evidence that Sorlini Pasta is suffering from the bullwhip effect? a. They hold a considerable amount of inventory, enough to satisfy their average demand for the next four weeks. b. Just before a
Which of the following is the best reason to add a second supplier for a critical component? a. The primary supplier is located in a flood-prone region, while the second supplier’s location is not subject to flooding. b. The second supplier is able to offer the same lead time as the
High Plains Inc. manufacturers furniture in North Dakota. High Plains receives its wood from a lumber yard in Calgary. The lead time for orders is 3 weeks. One of their boards costs $15 per unit and the holding cost for this board is $0.5 per week. They manage their inventory to achieve a 99.0
Characterize the following decision as either tactical or strategic: The discounts to offer on inventory available for an end-of-season sale. a. Tactical b. Strategic
What is the difference between p-charts and attribute-based control charts? a. p-charts are more quantitative. b. Attribute-based control charts really are a marketing tool and have nothing to do with operations. c. They are one and the same thing. d. p-charts monitor binary
A company is deciding whether to produce a new gadget at a plant located in a country close to consumers at a higher labor cost and shorter lead time or to outsource it to a country with a low labor cost but a longer lead time. All else being equal, which of the following considerations would
Characterize the following decision as either tactical or strategic: To operate make-to-stock or make-to-order. a. Tactical b. Strategic
A laptop manufacturer wants to compare the total cost of assembling its laptops in the United States versus Taiwan. All of the laptops will be sold in the United States. To evaluate inventory, it uses a safety factor of 2.25. The holding cost per laptop is $4 per week in the United States and $3.50
Characterize the following decision as either tactical or strategic: Which tier 1 supplier should be used for a particular component system? a. Tactical b. Strategic
What is the relationship between a location’s in-stock probability and the lead time that location delivers on shipments to its customers? a. The higher the in-stock probability, the smaller the lead time. b. There isn’t a definitive relationship—a higher in-stock probability could
Anvils Works’ requires, on average, 2800 tons of aluminum each week, with a standard deviation of 1000 tons. The lead time to receive its orders is 10 weeks. The holding cost for one ton of aluminum for one week is $11. It operates with a 0.98 in-stock probability a. On average, how many
B&D Online sells 10,000 different items through its website. Only 1000 of the items were demanded in a given week, but fortunately, demand exceeded inventory with only 50 items. What was their instock probability?
What is the relationship between the average inventory and the instock probability? a. The more the inventory, the lower the in-stock probability. b. There isn’t a definitive relationship—more inventory could mean a lower or a higher in-stock probability. c. The more the
Kooyman hardware sells 16 different types of drills. They had demand for 10 of the drills and satisfied 80 percent of the demand. What was their fill rate for drills?
Which of the following best explains why distributors help to reduce the space retailers need to store inventory? a. Distributors allow retailers to receive truckload shipments more frequently. b. Distributors decrease the total distance products travel in the supply chain. c.
Kooyman hardware sells a ladder. They had 5 ladders at the start of the week but demand was for 6 ladders. What was their fill rate for this ladder?
Which of the following statements best explains why distributors tend to spend less on storage space per square meter per year than retailers? a. Distributors provide break bulk service. b. Distributors don’t actually make products. c. Distributors can store more items per square
A firm satisfies all demand for 89 percent of its products during a week. What was the firm’s stock-out probability for that week?
Firm A manufactures brake pads, a component of a braking system, and sells them to firm B, who sells braking systems used in vehicles. Firm A is best described as a a. Tier 2 supplier. b. Tier 1 supplier. c. Manufacturer. d. Distributor. e. Retailer
1. What is the total cost of making a bag in San Francisco? What is the total cost of making a bag in China, including the transportation cost of shipping the bag from China to the United States? 2. Suppose Timbuk2 does move production of wholesale bags to China. Let’s say it can place
For 10 percent of the products in a category, a firm fails to satisfy all demand during the month. What is its in-stock probability?
A bicycle manufacturer purchases bicycle seats from an outside supplier for $22 each. The manufacturer’s inventory of seats turns over 1.2 times per month, and the manufacturer has an annual inventory holding cost of 32 percent. What is the inventory holding cost (in $) for a bicycle seat?
A local bookstore turns over its inventory once every three months. The bookstore’s annual cost of holding inventory is 36 percent. What is the inventory holding cost (in $) for a book that the bookstore purchases for $10 and sells for $18?
An integrated circuit manufacturer’s annual cost of holding inventory is 48 percent. What inventory holding cost (in $) does it incur for an item that costs $300 and has a one-month supply of inventory on average?
A computer company’s yearly inventory cost is 40 percent (which accounts for the cost of capital for financing the inventory, warehouse space, and the cost of obsolescence). Last year, the company had $400 million in inventory and cost of goods sold of $26 billion. What is the company’s total
A company’s holding cost is 16 percent per year. Its annual inventory turns are 10. The company buys an item for $40. What is the average cost (in $) to hold each unit of this item in inventory?
An online shoe retailer’s annual cost of holding inventory is 35 percent. The firm operates with a days-of-supply of 20 days, and assume there are 365 days per year. What is the inventory holding cost (in $) for a pair of shoes that the firm purchased for $50?
Computers lose value as they are stored in inventory. This is an example of which component of a firm’s inventory holding cost? a. Opportunity cost of capital b. Storage cost c. Spoilage cost d. Obsolescence cost
A retailer has annual sales of $500,000 and an average finishedgoods inventory of $15,000. If the retailer sells each unit for an average of $25 and purchases the units for $15, what is its annual inventory turnover?
Which of the following possible responses by a customer who is faced with a stockout is the most costly to the firm? a. Lose the sale and lose the customer. b. Lose the sale. c. Lose the sale of one item, but the customer purchases another item. d. Customer waits for the item to
A restaurant has annual sales of $420,000, an average inventory of $6000, and an annual cost of goods sold of $264,000. What are the restaurant’s days-of-supply of inventory?
All else being equal, a larger item is likely to have a higher annual holding cost percentage than a smaller item. True or false? a. Trueb. False
A restaurant has annual sales of $420,000, an average inventory of $6000, and an annual cost of goods sold of $264,000. What is the restaurant’s monthly inventory turns?
Which of the following figures from a firm’s financial statements should be used as its flow rate when computing its inventory turns? a. Sales revenue b. Cost of goods sold c. Inventory d. Net income
A manufacturing company producing medical devices reported $60 million in sales over the last year. At the end of the same year, the company had $20 million worth of inventory of ready-to-ship devices. Assuming that units in inventory are valued (based on cost of goods sold) at $1000 per unit and
Firms in the same industry will have the same inventory turns. True or false?a. True b. False
A mining company reported annual sales revenue of $75 billion, annual cost of goods sold of $50 billion, and inventory of $15 billion. What are the firm’s annual inventory turns?
Product A’s annual inventory turns is 4 and product B’s annual inventory turns is 6. Which product has the higher amount of inventory, measured in dollars?a. A b. B c. Cannot be determined (could be either one)
A manufacturer of farm equipment has annual turns of four, and its cost of goods sold (COGS) is $44 billion. What is the average inventory it holds?
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