Question

1. In the fixed order quantity inventory system, increasing the target cycle level (CSL) will have the following effect on the reorder point (ROP):

a. The ROP will decrease.

b. The ROP will stay the same.

c. The ROP will increase.

d. The question cannot be answered without the numerical information.

2. In the fixed order quantity inventory system, increasing the target cycle service level (CSL) will have the following effect on the optimal order quantity (i.e., the EOQ):

a. The EOQ will decrease.

b. The EOQ will stay the same.

c. The EOQ will increase.

d. The question cannot be answered without the numerical information.

3. The higher the level of safety inventory:

a. The higher the level of service provided.

b. The lower the cost of each unit.

c. The higher holding costs will be.

d. The increased likelihood of a stockout.

4. For the last 4 months, you ordered 100, 200, 300, and 400 units from your supplier, respectively. For these four months, the number of items you received were 100 (of the 100 ordered), 100 (of the 200 ordered), 300 (of the 300 ordered), and 400 (of the 400 ordered). For these four months , your supplier's actual cycle service level (CSL) was:

a. 75%

b. 90%

c. 100%

d. None of the above

5. In a M/M/s queuing system, Poisson arrival times (i.e., exponential time between arrivals) are characterized by:

a. Arrivals of customers that are independent of one another.

b. A fixed (i.e., constant) time between arrivals.

c. Time between arrivals that follow a bell curve.

Answer 1

1. The ROP will increase

ROP = Average demand during lead time + Z* daily demand * Sqrt(lead time)

As service level is increased, Z-value increases and hence ROP increases.

2. Option b - EOQ will remain the same. EOQ is a function of annual demand, Holding cost and order cost. It is not dependent on service level.

3. Option c. A higher level of safety inventory means more inventory at hand which increases the holding costs.

4. CSL= Total received / Total ordered = 900/1000 = 90%

5. Option a)

The time between arrivals varies but the average time between arrivals is more or less the same. The arrivals are discreet events and do not depend on earlier arrivals.