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
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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
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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
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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
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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.