Chapter 9

Planning Supply and Demand in the Supply Chain:

Managing Predictable Variability

True/False 1. Predictable variability is change in demand that cannot be forecasted.

Answer: False Difficulty: Easy

2. Faced with predictable variability of demand, a company’s goal is to respond in a

manner that maximizes profitability. Answer: True Difficulty: Easy

3. The advantage of carrying enough manufacturing capacity to meet demand in

any period is very low inventory costs, because no inventory needs to be carried from period to period. Answer: True Difficulty: Easy

4. The disadvantage of carrying enough manufacturing capacity to meet demand in

any period is that much of the expensive capacity would go unused during most months when demand was lower. Answer: True Difficulty: Easy

5. The advantage of building up inventory during the off season to keep production

stable year round lies in the fact that a firm could get by with a smaller, more expensive factory. Answer: False

Difficulty: Moderate

6. The disadvantage of building up inventory during the off season to keep

production stable year round is the expensive capacity that would go unused during most months when demand was lower. Answer: False Difficulty: Easy

7. An approach where a firm works with their retail partners in the supply chain to

offer a price promotion during periods of low demand would shift some of the demand into a slow period, thereby spreading demand more evenly throughout the year and reducing the seasonal surge. Answer: True

Difficulty: Moderate

8.

9.

10.

With supply and demand management decisions being made independently, it is easier to coordinate the supply chain, thereby increasing profit. Answer: False

Difficulty: Moderate

A firm can vary supply of product by controlling production capacity and inventory. Answer: True Difficulty: Easy

A firm that uses flexible work hours from the workforce to manage capacity to better meet demand is using a seasonal workforce. Answer: False

Difficulty: Moderate

Scheduling the workforce so that the available capacity better matches demand is using time flexibility from the workforce. Answer: True

Difficulty: Moderate

The use of a part-time workforce to increase the capacity flexibility by enabling the firm to have more people at work during peak periods is designing product flexibility into the production processes. Answer: False

Difficulty: Moderate

A firm that uses a temporary workforce during the peak season to increase capacity to match demand is using a seasonal workforce. Answer: True Difficulty: Easy

The use of dual facilities to manage capacity may be hard to sustain if the labor market is tight. Answer: False Difficulty: Hard

A firm that purchases peak production capability from other companies so that internal production remains level and can be done cheaply is using subcontracting. Answer: True Difficulty: Easy

A firm that builds dedicated facilities to produce a relatively stable output of products over time in a very efficient manner and purchases peak production capability from other companies is using subcontracting. Answer: False Difficulty: Hard

A firm that has production lines whose production rate can easily be varied to match demand has designed product flexibility into the production processes. Answer: True Difficulty: Easy

11.

12.

13.

14.

15.

16.

17.

18.

The use of a seasonal workforce requires that the workforce be multi-skilled and easily adapt to being moved from line to line. Answer: Moderate Difficulty: Hard

The use of common components across multiple products, with each product having predictably variable demand, will result in the demand for the components being relatively constant. Answer: True

Difficulty: Moderate

When most of the products a firm produces have the same peak demand season, the use of common components to create relatively constant overall demand in the components is feasible. Answer: False

Difficulty: Moderate

When most of the products a firm produces have the same peak demand season, it is necessary to build products during the off season that have more predictable demand.

Answer: True Difficulty: Easy

Operations usually makes the promotion and pricing decisions. Answer: False Difficulty: Easy

Maximizing revenue is typically the objective when marketing and sales make the promotion and pricing decisions. Answer: True Difficulty: Easy

Pricing decisions based only on revenue considerations often result in an increase in overall profitability. Answer: False

Difficulty: Moderate

The combination of pricing and aggregate planning (both demand and supply management) can be used to maximize supply chain profitability. Answer: True

Difficulty: Moderate

When performing aggregate planning, the goal of all firms in the supply chain should be to maximize individual firm profits. Answer: False

Difficulty: Moderate

Determining how profits will be allocated to different members of the supply chain is a key to successful collaboration. Answer: True

19.

20.

21.

22. 23.

24.

25.

26.

27.

28.

Difficulty: Moderate

In general, as the fraction of increased demand coming from forward buying grows, offering the promotion during the peak demand period becomes more attractive. Answer: False

Difficulty: Moderate

Offering a promotion during a peak period that has significant forward buying creates even more variable demand than before the promotion. Answer: True Difficulty: Easy

Average inventory decreases if a promotion is run during the peak period and increases if the promotion is run during the off-peak period. Answer: False Difficulty: Easy

Promoting during a peak demand month may decrease overall profitability if a significant fraction of the demand increase results from a forward buy. Answer: True Difficulty: Hard

As forward buying becomes a smaller fraction of the demand increase from a promotion, it is less profitable to promote during the peak period. Answer: False Difficulty: Hard

As the product margin declines, promoting during the peak demand period becomes less profitable. Answer: True Difficulty: Easy

When faced with seasonal demand, a firm should use a combination of pricing (to manage demand) and production and inventory (to manage supply) to improve profitability. Answer: True

Difficulty: Moderate

29.

30.

31.

32.

33.

34.

Multiple Choice 1. Predictable variability is

a. change in demand that can be forecasted. b. change in demand that cannot be forecasted. c. change in demand that has been planned.