Home Work: Chapter 2 Inventory Management and Risk Pooling Student Name: Shaheen Sardar Department: Industrial and Management Engineering, Hanyang University, South Korea. Home Work Chapter 2: Inventory Management and Risk Pooling: Discussion Questions and Answers: Designing and managing the supply chain: Concepts, strategies, and cases. Book Reference: Simchi-Levi, D., Kaminsky, P., and Simchi-Levi, E., & (2008). Designing and managing the supply chain: Concepts, strategies, and cases (3 rd edition). United-States: McGraw-Hill.
Problem 2: How can firms cope with huge variability in customer demand? Answer: Companies can cope with uncertainty by 1. keeping safety stock, 2. shortening production and order lead times, 3. using risk pooling strategies, 4. delaying product differentiation in the supply chain as much as possible, i.e., aggregating demand for parties upstream of the supply chain, and 5. by installing systems to achieve information sharing between suppliers and buyers, thus enabling collaborative demand forecasting. Problem 3: What is the relationship between service and inventory levels? Answer: In general, higher inventory levels make it easier to maintain higher service levels. However, modern inventory management techniques may make it possible to increase service levels without increasing inventory levels as much as in the past. Problem 4: What is the impact of lead time, and lead time variability, on inventory levels? Answer: The variability in demand increases as the average and the variance of lead time increase. Therefore, for a given service level, inventory levels increase with longer lead times and higher lead time variance. Problem 5: What factors should management consider when determining a target service level? Answer: The target service level depends on the mission-criticality of the product. For instance, consider a service parts vendor for equipment for which every hour of down time is very expensive. In this case, we would expect the management of the vendor company to specify a service level close to 100%. Market conditions also play an important role in determining target service levels. For commodities, we would expect relatively high service levels since customers can switch products easily if they do not find the particular product they look for. However, a lower service level may be acceptable if the product has a clear value differentiation compared to its competitors. For instance, customers of a high-end server that is clearly deemed superior to the rest of the market may be willing to wait for 1-2 weeks if the manufacturer is out-of- stock. Problem 6: Consider the (Q, R) policy analyzed in Section 2.2.6. Explain why the expected level of inventory before receiving the order is while the expected level of inventory immediately after receiving the order is Answer:
The reorder level s = L * AVG + z * STD * has two components. The first component L * AVG covers the expected demand during lead time, and the second component z * STD * is safety stock that protects against deviations from the expected demand during lead time.
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