DSCI 304 Quiz 3 - Extended

What is Supply Chain Management (SCM)?

The coordination and oversight of all activities involved in producing and delivering a product or service from its origin to the final customer.

What is the primary goal of SCM?

Deliver maximum value to customers while optimizing operational efficiency.

What are the five levels of a supply chain?

Tier 2 Suppliers; Tier 1 Suppliers; Manufacturers; Distributors; Retailers.

What is the role of Tier 2 Suppliers?

Make raw materials or specific components.

What is the role of Tier 1 Suppliers?

Create integrated more complex components.

What is the role of Manufacturers?

Design and assemble completed products.

What is the role of Distributors?

Facilitate the efficient delivery of products to the market.

What is the role of Retailers?

Offer a product assortment to consumers.

What is an online retailer?

A retailer that sells products through a website or app and ships them using a third-party carrier. Also called an e-tailer.

What is a mail-order retailer?

A retailer that sells products through a print catalog and ships them to consumers.

What is a brick-and-mortar retailer?

A retailer with physical stores where consumers can immediately purchase goods.

What is a Distribution Center (DC)?

A building that receives products from suppliers and redistributes them to retail stores or consumers. Also called a fulfillment center.

What is Lead Time?

The time required to receive an order.

What is Breaking Bulk?

When a distributor purchases large quantities but allows customers to purchase smaller quantities.

What is a Pallet?

A platform used as a base to store inventory or stack quantities of inventory.

What is the main trade-off in supply chain management?

Cost versus flexibility.

What is a flexible supply chain?

A supply chain better able to cope with variability but more expensive to operate.

What is an in-stock probability?

The probability that all demand is served within an interval of time.

What is the formula for in-stock probability?

1 − Stockout Probability.

What is a stockout probability?

The probability that demand for an item exceeds its available inventory during a period of time.

What is the formula for stockout probability?

1 − In-Stock Probability.

What is Fill Rate?

The fraction of demand that is satisfied.

What are the four key cost metrics in SCM?

Procurement; labor; inventory; transportation costs.

What is Procurement Cost?

The cost of purchasing materials.

What is Labor Cost?

The cost of workers.

What is Inventory Cost?

The cost of holding inventory including capital

What is Transportation Cost?

The cost of moving products within the supply chain and to consumers.

What are Tactical Decisions?

Decisions that impact short-term performance.

What are Strategic Decisions?

Decisions that have long-term implications.

What are Functional Products?

Products that are relatively safe because they do not experience considerable variability.

What are Innovative Products?

Products that are relatively risky because they can experience substantial variability.

What is Gross Margin?

The difference between the selling price and purchase cost expressed as a percentage of the selling price.

What is a Physically Efficient Supply Chain?

A supply chain designed to minimize costs.

What is a Market-Responsive Supply Chain?

A supply chain designed to emphasize flexibility over cost.

What are the three types of demand variability?

Variability in demand level; product variety; and location.

What is variability in demand level?

Variability in the total demand across the supply chain.

What is variability due to product variety?

Variability in how total demand is allocated across different types or versions of a product.

What is variability due to location?

Variability in how total demand is allocated across different supply chain locations.

What is the Bullwhip Effect?

The tendency for demand to become more volatile at higher levels of the supply chain.

What are three causes of the Bullwhip Effect?

Overreactive ordering; batching; and price promotions.

How can supply chain partners increase variability?

Through failures in quantity; quality; finances; or operating practices.

What are natural supply chain disruptions?

Disruptions caused by earthquakes floods and other environmental events.

What are political/economic supply chain disruptions?

Disruptions caused by wars conflicts and humanitarian crises.

What is the main trade-off in supply chain strategies?

Cost versus flexibility.

What is the impact of faster transportation?

It reduces inventory but may increase transportation costs.

What is a Period in supply chain management?

The time between when orders can be placed.

What is On-Order Inventory?

Inventory that has been shipped but has not yet been received.

What is On-Hand Inventory?

Inventory that is ready to be used to serve customer demand.

What is a Safety Factor?

A parameter that determines the in-stock probability.

What happens when the Safety Factor increases?

In-stock probability and average on-hand inventory both increase.

What is Overseas Sourcing?

Moving manufacturing or purchasing activities to another country.

What is one advantage of Overseas Sourcing?

It may reduce labor costs.

What are two disadvantages of Overseas Sourcing?

It increases required inventory and creates longer lead times.

What is Make-to-Order?

A strategy in which products are made in response to customer demand.

What does Make-to-Order require?

The ability to respond quickly to customer demand and offer a broad product selection without substantial inventory costs.

What are characteristics of Online Retailing?

Fewer locations; broader product selection; less inventory storage space; and committing to where products will be sold after a customer places an order.

How is Online Retailing similar to Make-to-Order?

Both respond to customer requests and can offer broad product selections without relying on inventory at many physical locations.

What is the Economic Order Quantity (EOQ) Model?

A model used to select an order quantity that minimizes the sum of ordering and inventory holding costs per unit of time.

What is the main goal of EOQ?

Minimize the total ordering and holding costs per unit of time.

What does h represent in the EOQ model?

Holding cost per unit per unit of time.

What does K represent in the EOQ model?

The fixed cost per order.

What does D represent in the EOQ model?

Demand per unit of time.

What is Holding Cost?

The total cost of keeping a unit of inventory in stock for a period of time.

What is Fixed Order Cost?

The fixed cost incurred each time an order is placed independent of the amount ordered.

What is Lead Time?

The time between when an order is placed and when it is received.

What is Ordering Cost per Unit of Time?

The sum of all fixed order costs over a period of time.

What is Holding Cost per Unit of Time?

The total cost of holding inventory over a period of time.

What is EOQ Cost per Unit of Time?

The sum of ordering costs and holding costs per unit of time.

What is Purchasing Cost?

The cost to purchase inventory during a period of time.

What are the main assumptions of the EOQ model?

Constant demand; fixed ordering cost; a holding cost per unit; all demand is satisfied from inventory; no spoilage or loss; reliable lead time; and a purchase price independent of quantity.

What does it mean that demand occurs at a constant rate?

Demand is steady and predictable over time.

What does it mean that all demand is satisfied from inventory?

No shortages are permitted.

Why does the EOQ model assume inventory never spoils or degrades?

Because the model assumes all inventory is eventually sold or used.

Why does the EOQ model assume reliable lead time?

Because orders are expected to arrive consistently within the expected time.

What is Average Inventory?

The average quantity of inventory held over time.

What is the formula for Average Inventory?

Order Quantity (Q) ÷ 2.

What is the formula for Holding Cost per Unit of Time?

H = (Q ÷ 2) × h.

What is the formula for Number of Orders per Unit of Time?

D ÷ Q.

What is the formula for Ordering Cost per Unit of Time?

K × (D ÷ Q).

What happens to average inventory when order quantity increases?

Average inventory increases.

What happens to holding costs when order quantity increases?

Holding costs increase.

What happens to the number of orders when order quantity increases?

The number of orders decreases.

What happens to ordering costs when order quantity increases?

Ordering costs decrease.

What is the EOQ Cost Function?

The sum of ordering costs and holding costs per unit of time.

What is the relationship between ordering and holding costs at the EOQ?

At the optimal EOQ ordering costs and holding costs are equal.

What are Economies of Scale?

A relationship between operational efficiency and demand in which greater demand leads to a more efficient process.

What is Product Substitution?

When customers are willing to purchase a less-preferred version of a product if their preferred version is unavailable.

What happens to total ordering and holding costs as demand increases when EOQ is used?

Total costs increase but at a slower rate than demand.

Why can adding a product to an assortment be costly?

If it reduces demand for existing products those products lose economies of scale and become less efficient.

What is the impact of increased product variety on inventory costs?

It can reduce demand per product making existing products less efficient and increasing relative inventory costs.

What is a Quantity Discount?

A reduction in unit purchase price offered as an incentive to order larger quantities.

What is the effect of ordering larger quantities on inventory costs?

The sum of ordering and holding costs increases above the minimum.

What is the benefit of a Quantity Discount?

It reduces the purchasing cost per unit.

Can a very large order quantity be optimal even with a small discount?

Yes. Purchasing cost savings can outweigh additional ordering and holding costs.

What costs should be considered when comparing quantity discount options?

Purchasing costs; ordering costs; and inventory holding costs.

What is an All-Units Quantity Discount?

A discount structure in which the discounted unit price applies to all units purchased once the order quantity reaches a specified threshold.

What is a Quantity Constraint?

A restriction that limits the amount of inventory a company can order or store.

What should a company evaluate when comparing quantity discount options?

Feasible order quantities and total annual costs including purchasing ordering and holding costs.