Module 6 Questions

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Zach Bowman QSO-322 Module 6 Comprehension Questions 12/06/2023

1. Discuss the relationship between service level, uncertainty, safety stock, and order quantity. How can trade-offs between these elements be made? (Ch. 7) When talking about surface level we refer to the ability to meet customer demand within an agreed-on timeframe. We sometimes measure this as a percentage, which indicates the portion of customer demand that can be fulfilled on time. Higher service levels require higher inventory levels to meet customer demand consistently. Uncertainty often refers to the unpredictability in demand or supply. This can often be caused by factors such as changing customer preferences, seasonality, or supplier reliability. There is a direct correlation between uncertainty and the need for higher safety stock levels. Safety stock refers to the extra inventory that companies hold to help mitigate the risk of stock-outs caused by uncertainty. This stock is a buffer to absorb unexpected demand or supply fluctuations. Higher uncertainty or variability in demand or supply typically requires higher safety stock levels. Order quantity often refers to the quantity of inventory ordered from suppliers. It directly impacts the cost of holding the inventory, usually larger order quantities will result in higher costs of carrying. Larger order quantities can help to achieve economies of scale, but they also increase the risk of damage and stock-outs if the demand is uncertain. In order for a company to make trade-offs they first must analyze historical demand patterns, conduct demand forecasting, and use statistical methods to estimate uncertainty. When they understand the cost associated with different service levels, companies can optimize their supply chain operations to strike a balance between cost, customer satisfaction, and risk. 2. What is the difference between the probability of a stock-out and the magnitude of a stock-out? (Ch. 7) The probability of a stock-out often refers to the likelihood or chance that a stock-out will occur. This is just a measure of the probability that the inventory level will fall below a certain

threshold before a restock can arrive. The magnitude of a stock-out refers to the impact that a stock-out has when it occurs. It quantifies the extent to which customer demand cannot be fulfilled due to the stock-out occurring. We measure this in terms of lost sales, back orders, or customer dissatisfaction. 3. Customer-based inventory management strategies allow the use of different availability levels for specific customers. Discuss the rationale for such a strategy. Are such strategies discriminatory? Justify your position. (Ch. 7) The rationale for using different availability levels for specific customers in customer- based inventory management strategies is to prioritize and allocate inventory based on the importance or value of each customer. This strategy recognizes the reality that not all customers have the same level of demand or contribution to the organization. When the companies tailor the availability levels to specific customers, they can ensure that their most valuable customers receive special treatment and are more likely to have their demand filled. This definitely strengthens customer and company relationships. This also allows companies to allocate their limited inventory resources more efficiently, focusing on customers who generate greater revenue. So that companies can ensure that customer-based inventory management strategies are not discriminatory, there should be clear and established criteria for determining availability levels. I would include factors such as history, revenue contribution, strategic importance, or contractual agreements. Using transparent and justifiable criteria, companies can demonstrate that their allocation decisions are based on business related factors rather than discriminatory considerations.

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Resources: Bowersox, D. (20190115). Supply Chain Logistics Management, 5th Edition. [[VitalSource Bookshelf version]]. Retrieved from vbk://9780077729134

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