1. What is the role of safety inventory in the supply chain?
Safety inventory is inventory carried to satisfy demand that exceeds the amount forecasted for a given period. As such, it tends to have a negative impact on supply chain cost but a positive impact on supply chain responsiveness. Safety inventory is carried because product demand and lead time are uncertain and a product shortage may result if actual demand during lead time exceeds the forecast amount.
2. Explain how a reduction in lead time can help a supply chain reduce safety inventory without hurting product availability.
A reduction in lead time reduces supply chain safety inventory according to equations 11.2 through 11.4. The reorder point is driven by the demand during lead time, the standard deviation of demand during lead time, and the customer service level, the latter two combining to form the safety stock. If lead time falls, the standard deviation of demand during lead time also falls, resulting in less safety stock.
Taking an intuitive (and extreme) approach, if lead time approached zero there would be no need for safety (or any) stock since customer orders could be filled instantaneously.
3. What are the pros and cons of the various measures of product availability?
The common measures of product availability discussed in this chapter are product fill rate, order fill rate, and cycle service level (CSL).
Product fill rate is the fraction of product demand that is satisfied from product in inventory and should be measured over specified amounts of demand rather than time. Fill rate provides an accurate picture of the number of customers that receive their single-product orders.
Order fill rate is the fraction of orders that are filled from available inventory and should be measured over a specified number of orders rather than time. In the multiproduct case, poor...