Chapter 11
Managing Uncertainty in the Supply Chain: Safety Inventory
True/False 1. Safety inventory is inventory carried for the purpose of satisfying demand that
exceeds the amount forecasted for a given period. Answer: True
Difficulty: Moderate
2. Raising the level of safety inventory increases product availability and thus the
margin captured from customer purchases. Answer: True
Difficulty: Moderate
3. Carrying excessive inventory can help counter demand volatility when new
products come on the market. Answer: False
Difficulty: Moderate
4. The appropriate level of safety inventory is determined by the uncertainty of both
demand and supply and the desired level of cycle inventory. Answer: False
Difficulty: Moderate
5. As the uncertainty of supply or demand grows, the required level of safety
inventories increases. Answer: True
Difficulty: Moderate
6. As the desired level of product availability increases, the required level of safety
inventory decreases. Answer: False Difficulty: Easy
7. Lead time is the gap between when an order is placed and when it is received.
Answer: True Difficulty: Easy
8. The coefficient of variation measures the size of the relative certainty of cycle
inventory.
Answer: False Difficulty: Easy
9. Product availability reflects a firm’s ability to fill a customer order out of available
inventory. Answer: True
Difficulty: Moderate
10.
Order fill rate is the fraction of product demand that is satisfied from product in inventory.
Answer: False
Difficulty: Moderate
Product fill rate is the fraction of product demand that is satisfied from product in inventory. Answer: True
Difficulty: Moderate
The distinction between product fill rate and order fill rate is significant in a single product situation. Answer: False Difficulty: Hard
Tracking order fill rates is important when customers place a high value on the entire order being filled simultaneously. Answer: True Difficulty: Easy
With continuous review, inventory is continuously tracked and an order for a lot size Q is placed at regular intervals of time. Answer: False Difficulty: Hard
With periodic review, inventory status is checked at regular intervals and an order is placed to raise the inventory level to a specified threshold. Answer: True Difficulty: Hard
The expected shortage per replenishment cycle (ESC) is the average units of demand that are satisfied from inventory in stock per replenishment cycle. Answer: False Difficulty: Hard
A shortage occurs in a replenishment cycle only if the demand during the lead time exceeds the ROP. Answer: True
Difficulty: Moderate
The required safety inventory grows rapidly with a decrease in the desired product availability. Answer: False Difficulty: Easy
In most supply chains, the key to reducing the underlying forecast uncertainty is to link all forecasts throughout the supply chain to customer demand data. Answer: True
Difficulty: Moderate
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A reduction in supply can help dramatically reduce safety inventory required without hurting product availability. Answer: False
Difficulty: Moderate
Aggregation reduces the standard deviation of demand only if demand across the regions being aggregated is not perfectly positively correlated. Answer: True
Difficulty: Moderate
The lower the coefficient of variation of an item, the greater the reduction in safety inventories as a result of centralization. Answer: False Difficulty: Hard
Manufacturer-driven substitution increases overall profitability for the
manufacturer by allowing some aggregation of demand, which reduces the inventory requirements for the same level of availability. Answer: True
Difficulty: Moderate
Periodic review policies require more safety inventory than continuous review policies for the same level of product availability. Answer: True Difficulty: Easy
When using a continuous review policy, a manager has to account for the uncertainty of demand during the lead time and the review interval. Answer: False Difficulty: Easy
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Essay/Problems 1. Discuss the role of safety inventory in the supply chain and the trade-offs
involved.
Answer: The primary role of safety inventory is providing product availability for customers when demand and supply are uncertain. The trade-off that a supply chain manager must consider when planning safety inventory involve product
availability and inventory holding costs. On one hand, raising the level of safety inventory increases product availability and thus the margin captured from customer purchases. On the other hand, raising the level of safety inventory increases inventory holding costs. This issue is particularly significant in industries where product life cycles are short and demand is very volatile. Carrying excessive inventory can help counter demand volatility but can really hurt if new products come on the market and demand for the product in inventory dries up. The inventory on hand then becomes worthless.
In today’s business environment, firms experience great pressure to improve product availability while increasing product variety through customization. As a result, markets have become increasingly heterogeneous and demand for
individual products is very unstable and difficult to forecast. Both the increased variety and the increased pressure for availability push firms to increase the level of safety inventory they hold.
At the same time, product life cycles have shrunk. This increases the risk to firms of carrying too much inventory. Thus, a key to the success of any supply chain is to figure out ways to decrease the level of safety inventory carried without hurting the level of product availability. Difficulty: Hard
答：主要作用是提供安全库存产品供应顾客时，供给和需求是不确定的。权衡，供应链经理必须考虑规划时，安全库存中涉及的产品供应和库存持有成本。一方面，提高水平的安全库存增加产品的可用性，因此保证金捕获从客户购买。另一方面，提高水平的安全库存增加库存持有成本。这个问题是特别重要的行业，产品生命周期短，需求不确定。承载过多的存货可以帮助对付需求波动，但真的伤害如果新产品进入市场和需求的产品的库存枯竭。存货的手变得毫无价值。
在今天的商业环境下，企业经历了巨大压力，提高产品的可用性，增加产品品种，通过定制。因此，市场越来越异构和个人需求的产品很不稳定，很难预测。既增加品种和增加压力，有效推动企业提高安全水平，库存持有。
同时，产品生命周期的缩减。这增加了风险企业进行过多的库存。因此，一个成功的关键，任何供应链是找出方法来降低安全库存水平不伤害的产品可用性水平。 难度：困难
2.
Discuss the various measures of product availability.
Answer: Product availability reflects a firm’s ability to fill a customer order out of available inventory. A stockout results if a customer order arrives when product is not available. There are several ways to measure product availability. All
availability measures are defined on average over a given time frame, which can range from hours to a year.
Product fill rate (fr) is the fraction of product demand that is satisfied from product in inventory. It is equivalent to the probability that product demand is supplied from available inventory.
Order fill rate is the fraction of orders that are filled from available inventory. In a multi-product scenario, an order is filled from inventory only if all products in the order can be supplied from the available inventory. Order fill rates tend to be lower than product fill rates because all products must be in stock for an order to be filled.
Cycle service level (CSL) is the fraction of replenishment cycles that end with all the customer demand being met. A replenishment cycle is the interval between two successive replenishment deliveries. The CSL is equal to the probability of not having a stockout in a replenishment cycle. Observe that a CSL of 60 percent will typically result in a much higher fill rate.
The distinction between product fill rate and order fill rate is not significant in a single product situation. When a firm is selling multiple products, however, this difference may be significant. For example, if most orders include 10 or more different products that are to be shipped, an out-of-stock situation of one product results in the order not being filled from stock. The firm in this case may have a poor order fill rate even though it has good product fill rates. Tracking order fill rates is important when customers place a high value on the entire order being filled simultaneously. Difficulty: Moderate
答：产品的可用性反映了一个公司的能力，填写客户订单的可用库存。缺少结果如果客户订单到达时，产品不可用。有几种方法来衡量产品的可用性。所有可用的措施是指平均超过一个给定的时间框架，这可以从几个小时至一年。
产品的填充率（法国）是部分产品需求的满意的产品库存。它相当于概率产品需求，提供从现有的库存。
订单满足率部分订单，是从现有的库存。在一个多产品的情况下，命令是由填充库存只有订单中的所有产品可以提供从现有的库存。订单满足率往往低于产品填补率因为所有产品都必须在一个订单填写。
周期服务水平（俊）是部分补给周期结束与所有客户的需求被满足。补货周期之间的间隔连续补货发货。俊的概率是相当的不具有缺货的补货周期。观察到的俊百分之60通常会导致更高的填充率。
区分产品的填充率和订单满足率是不显着在一个单一的产品情况。当一个公司销售多种产品，然而，这种差异可能是重要的。例如，如果大部分订单包括10个或更多不同的产品，是一个产品缺货的情况，结果在不被填补从股票。公司在这种情况下可能有一个贫穷的订货满足率虽然具有很好的产品填充率。跟踪订单满足率是重要的，当客户对高价值的整个订单被填充的同时。 难度：中等
3.
Describe the two types of ordering policies and the impact each has on safety inventory.