Testbank Chapter 12 GSCM

Supply Chain Management, 6e, Global Edition (Chopra/Meindl)
Chapter 12 Managing Uncertainty in a Supply Chain: Safety Inventory

12.1 True/False Questions

1) Safety inventory is inventory carried for the purpose of satisfying demand that exceeds the
amount forecasted for a given period.
Answer: TRUE
Diff: 2
Topic: 12.1 The Role of Safety Inventory in a Supply Chain
AACSB: Application of knowledge
Objective: LO 12.2: Understand the role of safety inventory in a supply chain.

2) Raising the level of safety inventory increases product availability and thus the margin
captured from customer purchases.
Answer: TRUE
Diff: 2
Topic: 12.1 The Role of Safety Inventory in a Supply Chain
AACSB: Analytical thinking
Objective: LO 12.2: Understand the role of safety inventory in a supply chain.

3) Carrying excessive inventory can help counter demand volatility when new products come on
the market.
Answer: FALSE
Diff: 2
Topic: 12.1 The Role of Safety Inventory in a Supply Chain
AACSB: Application of knowledge
Objective: LO 12.2: Understand the role of safety inventory in a supply chain.

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
Diff: 2
Topic: 12.1 The Role of Safety Inventory in a Supply Chain
AACSB: Analytical thinking
Objective: LO 12.2: Understand the role of safety inventory in a supply chain.

5) Product availability reflects a firm's ability to fill a customer order out of available inventory.
Answer: TRUE
Diff: 2
Topic: 12.3 Determining the Appropriate Level of Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.1: Describe different measures of product availability.




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,6) Product fill rate is the fraction of product demand that is satisfied from product in inventory.
Answer: TRUE
Diff: 2
Topic: 12.2 Factors Affecting the Level of Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.1: Describe different measures of product availability.

7) 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
Diff: 3
Topic: 12.2 Factors Affecting the Level of Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.3: Identify factors that influence the required level of safety inventory.

8) 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
Diff: 3
Topic: 12.2 Factors Affecting the Level of Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.1: Describe different measures of product availability.

9) For the same safety inventory, an increase in lot size increases the fill rate but not the cycle
service level.
Answer: TRUE
Diff: 3
Topic: 12.2 Factors Affecting the Level of Safety Inventory
AACSB: Analytical thinking
Objective: LO 12.1: Describe different measures of product availability.

10) A goal of any supply chain manager is to reduce the level of safety inventory required
regardless of the affect product availability.
Answer: FALSE
Diff: 1
Topic: 12.2 Factors Affecting the Level of Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.3: Identify factors that influence the required level of safety inventory.

11) 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
Diff: 2
Topic: 12.4 Impact of Supply Uncertainty on Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.3: Identify factors that influence the required level of safety inventory.


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, 12) A reduction in supply can help dramatically reduce safety inventory required without hurting
product availability.
Answer: FALSE
Diff: 2
Topic: 12.4 Impact of Supply Uncertainty on Safety Inventory
AACSB: Application of knowledge
Objective: LO 12.3: Identify factors that influence the required level of safety inventory.

13) Aggregation reduces the standard deviation of demand only if demand across the regions
being aggregated is not perfectly positively correlated.
Answer: TRUE
Diff: 2
Topic: 12.5 Impact of Aggregation on Safety Inventory
AACSB: Analytical thinking
Objective: LO 12.4: Use available managerial levers to lower safety inventory without hurting
product availability.

14) In case demand in different geographical regions is about the same size and independent,
aggregation increases safety inventory by the square root of the number of areas aggregated.
Answer: FALSE
Diff: 2
Topic: 12.5 Impact of Aggregation on Safety Inventory
AACSB: Analytical thinking
Objective: LO 12.4: Use available managerial levers to lower safety inventory without hurting
product availability.

15) The lower the coefficient of variation of an item, the greater the reduction in safety
inventories as a result of centralization.
Answer: FALSE
Diff: 3
Topic: 12.5 Impact of Aggregation on Safety Inventory
AACSB: Analytical thinking
Objective: LO 12.4: Use available managerial levers to lower safety inventory without hurting
product availability.

16) 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
Diff: 2
Topic: 12.5 Impact of Aggregation on Safety Inventory
AACSB: Analytical thinking
Objective: LO 12.4: Use available managerial levers to lower safety inventory without hurting
product availability.




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