Chapter 12 Managing Uncertainty in a Supply Chain: Safety Inventory

12.2 Multiple Choice Questions

1) Inventory carried for the purpose of satisfying demand that exceeds the amount
forecasted for a given period is
A) cycle inventory. B) demand inventory.
C) safety inventory. D) security inventory.
2) Safety inventory is carried because
A) demand forecasts are accurate. B) demand forecasts are uncertain.
C) adequate supplies are available. D) excess product was manufactured.
3) The trade-off that a supply chain manager must consider when planning safety
inventory is
A) increasing product availability versus increasing inventory holding costs.
B) decreasing product availability versus decreasing inventory holding costs.
C) increasing product availability versus raising the level of safety inventory.
D) decreasing product availability versus decreasing the level of safety inventory.
4) The issue of product availability and the level of safety inventory is particularly
significant in industries where
A) product life cycles are short and demand is stable.
B) product life cycles are short and demand is very volatile.
C) product life cycles are long and demand is stable.
D) product life cycles are long and demand is very volatile.
5) 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?
A) Compaq B) Hewlett-Packard
C) Dell D) Packard-Bell
Answer: C
6) The fraction of product demand that is satisfied from product in inventory is the

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A) customer fill rate. B) product fill rate.
C) order fill rate. D) cycle service level (CSL).
7) The fraction of replenishment cycles that end with all the customer demand being met
is the
A) customer fill rate. B) product fill rate.
C) order fill rate. D) cycle service level (CSL).
8) The distinction between product fill rate and order fill rate is:
A) not significant in a single product situation.
B) significant in a single product situation.
C) not significant when a firm is selling multiple products.
D) significant when a firm is selling multiple products.
9) 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
A) continuous review. B) daily review.
C) occasional review. D) periodic review.
10) 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
A) continuous review. B) daily review.
C) occasional review. D) periodic review.
11) As the safety inventory is increased,
A) fill rate increases and cycle service level decreases.
B) fill rate decreases and cycle service level increases.
C) both fill rate and cycle service level increase.
D) both fill rate and cycle service level decrease.
12) For the same safety inventory, an increase in lot size
A) decreases the fill rate but not the cycle service level.
B) increases the fill rate but not the cycle service level.
C) decreases both the fill rate and the cycle service level.

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D) increases both the fill rate and the cycle service level.
13) The required safety inventory
A) grows rapidly with a decrease in the desired product availability.
B) grows rapidly with an increase in the desired product availability.
C) decreases with an increase in the desired product availability.
D) remains stable with an increase in the desired product availability.
14) The required safety inventory
A) increases with an increase in the lead time and the standard deviation of periodic demand.
B) decreases with an increase in the lead time and the standard deviation of periodic demand.
C) remains stable with an increase in the lead time and the standard deviation of periodic
demand.
D) increases with a decrease in the lead time and the standard deviation of periodic demand.
15) A goal of any supply chain manager is to
A) increase the level of safety inventory required in a way that does not adversely affect
product availability.
B) increase the level of safety inventory required regardless of the effect on product
availability.
C) reduce the level of safety inventory required regardless of the effect on product availability.
D) reduce the level of safety inventory required in a way that does not adversely affect product
availability.
16) As the uncertainty of supply or demand ________, the required level of safety
inventories ________.
A) grows, increases B) increases, decreases
C) decreases, grows D) decreases, increases
17) The ________ is the average units of demand that are not satisfied from inventory in
stock per replenishment cycle.
A) ROP B) ESC C) EOQ D) CSL
18) Both ________ and ________ increase as the safety inventory is increased.
A) fill rate, cycle service level B) lead time, cycle service level

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C) fill rate, lead time D) reorder point, lead time
19) Lead time is the gap between
A) when an order is placed and when it is received.
B) when an order is received and when it is put away.
C) when an order is received and when it is used.
D) when an order is acknowledged and when it is received.
20) The coefficient of variation measures
A) the accuracy of the demand forecast.
B) the size of the uncertainty relative to demand.
C) the relevance of cycle inventory to demand.
D) the relative certainty of the forecast.
29) The expected shortage per replenishment cycle (ESC) is
A) the units of demand that are not satisfied from inventory in stock in a given replenishment
cycle.
B) the units of demand that are satisfied from inventory in stock in a given replenishment
cycle.
C) the average units of demand that are not satisfied from inventory in stock per replenishment
cycle.
D) the average units of demand that are satisfied from inventory in stock per replenishment
cycle.
30) Given a lot size of Q (which is also the average demand in a replenishment cycle),
A) the fraction of demand lost is thus ESC + Q.
B) the fraction of demand lost is thus ESC - Q.
C) the fraction of demand lost is thus ESC/Q.
D) the fraction of demand lost is thus ESC × Q.
31) A shortage occurs in a replenishment cycle
A) only if the demand during the lead time exceeds the ROP.
B) only if the demand during the lead time is less than the ROP.

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C) only if the demand during the lead time exceeds the average demand.
D) only if the demand during the lead time is less than the average demand.
32) Often, safety inventory calculations in practice
A) do not include any measure of supply uncertainty, resulting in levels that may be higher
than required.
B) do not include any measure of supply uncertainty, resulting in levels that may be lower than
required.
C) include measures of supply uncertainty, resulting in levels that may be higher than required.
D) include any measures of supply uncertainty, resulting in levels that may be lower than
required.
33) A(n) ________ in supply uncertainty can help ________ safety inventory required
without hurting product availability.
A) reduction, increase B) increase, reduce
C) reduction, reduce D) reduction, cancel
37) ________ is the ability of a supply chain to delay product differentiation or
customization until closer to the time the product is sold.
A) Specialization B) Centralization
C) Postponement D) Aggregation
38) Aggregation reduces the standard deviation of demand
A) only if demand across the regions being aggregated is perfectly positively correlated.
B) only if demand across the regions being aggregated is not perfectly positively correlated.
C) even if demand across the regions being aggregated is not perfectly positively correlated.
D) whenever demand across the regions being aggregated is not perfectly positively correlated.
39) Which approach to aggregation requires an information system that allows access to
current inventory records from each location?
A) Information centralization B) Specialization
C) Product substitution D) Component commonality
40) Which approach to aggregation would stock the fast-moving items at decentralized
locations close to the customer and slow-moving items at a centralized location?

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A) Information centralization B) Specialization
C) Product substitution D) Component commonality
41) The use of one product to satisfy demand for a different product is
A) information centralization. B) specialization.
C) product substitution. D) component commonality.
42) Which use of common components in a variety of products has been a very effective
supply chain strategy to exploit aggregation and reduce component inventories?
A) Information centralization B) Specialization
C) Product substitution D) Component commonality
43) The ability of a supply chain to delay product differentiation or customization until closer
to the time the product is sold is
A) information centralization. B) specialization.
C) product substitution. D) postponement.
44) Which approach to aggregation has the goal of moving product differentiation as
close to the pull phase of the supply chain as possible?
A) Information centralization B) Specialization
C) Product substitution D) Postponement
45) Periodic review policies for inventory replenishment require safety inventory to cover
demand during
A) lead time only. B) the review interval only.
C) both lead time and the review interval. D) neither lead time or the review interval.
46) Continuous review policies for inventory replenishment require safety inventory to
cover demand during
A) lead time only. B) the review interval only.
C) both lead time and the review interval. D) neither lead time or the review interval.
47) Periodic review policies require
A) more safety inventory than continuous review policies for the same level of product
availability.

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B) less safety inventory than continuous review policies for the same level of product
availability.
C) the same safety inventory as continuous review policies for the same level of product
availability.
D) no more safety inventory than continuous review policies for the same level of product
availability.
48) All inventory between a given stage in the supply chain and the final customer is
called the
A) cycle inventory. B) demand inventory.
C) echelon inventory. D) safety inventory.
49) A distributor should decide his safety inventory levels based on
A) the level of safety inventory carried by all retailers supplied by him.
B) the level of safety inventory carried by other distributors.
C) the level of safety inventory carried by manufacturers supplying him.
D) the level of cycle inventory carried by all retailers supplied by him.
50) As retailers decrease the level of safety inventory they carry, the distributor will have
to
A) decrease his or her safety inventory. B) increase his or her safety inventory.
C) keep his or her safety inventory at the same level.
D) increase his or her cycle inventory.
51) What is the descriptive term for demand that occurs not in a steady stream of single
units but in periodic large lots?
A) Batch B) Bulky C) Lumpy D) Polled
52) What is an explanation offered for why firms have not historically tracked stockouts
very well?
A) There is no agreed upon definition of stockouts. B) There is no way to track stockouts.
C) Stockouts occur after the fact. D) Stockouts are difficult to track