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A firm sells an average of 2,000 units of snacks from its existing stock while it waits for orders to be delivered. Demand during lead time varies in accordance with a normal distribution. The firm's supply manager prepares a presentation to explain the concept of customer service and safety stock levels using the following figure:
What does the shaded area D (in red) represent?
Suggested Answer: C
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The shaded area D represents the probability of running out of stock during lead time, indicating the level of risk if safety stock is insufficient. Proper safety stock levels are crucial to minimize stock-outs and ensure service reliability. Reference: Chopra, S., & Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation.
27 comments · newest first
LA
Latosha
10 months ago
Service level sounds right to me!
FR
Francine
10 months ago
Wait, are we sure about this? Seems a bit confusing.
LO
Lon
10 months ago
I thought it was average demand during lead-time.
JE
Jesus
10 months ago
Definitely not! It's about stock-out risk, I think.
AL
Almeta
11 months ago
I'm pretty sure D is the re-order point.
JO
Johnathon
12 months ago
I’m leaning towards service level for the shaded area, but I could see how it might also indicate stock-out risk. This is tricky!
RO
Rodolfo
12 months ago
I feel like D could be the re-order point, but I need to double-check how that relates to the normal distribution curve.
RE
Reta
12 months ago
I remember practicing a similar question where we discussed average demand during lead time. That might be what D represents here.
DI
Dierdre
1 year ago
I think the shaded area D represents the stock-out risk, but I'm not entirely sure. It could also relate to service levels.
RO
Rolande
1 year ago
This is a straightforward inventory management question. The shaded area represents the re-order point, which is the level of inventory that triggers a new order to be placed. I'm confident in this answer.
CE
Ceola
1 year ago
I'm a bit confused by the terminology here. Is the "service level" the same as the customer service level? And how does that relate to the shaded area? I'll need to think this through carefully.
BE
Bette
1 year ago
Okay, I think I've got this. The shaded area must represent the stock-out risk, which is the probability of running out of inventory during the lead time. I'll select that option and move on.
RI
Rickie
1 year ago
Hmm, the question is asking about the shaded area, but I'm not sure exactly what it's referring to. I'll need to review the concepts of customer service, safety stock, and lead time to figure this out.
BE
Bernardo
1 year ago
This looks like a standard inventory management question. I'll need to carefully analyze the graph and the options to determine what the shaded area represents.
MA
Maile
1 year ago
I disagree, I believe it represents stock-out risk.
LE
Leota
1 year ago
Ooh, the shaded area is the average demand during lead-time. Gotta love those normal distributions, they really keep us on our toes!
SH
Shawn
10 months ago
I still find the service level concept fascinating!
DE
Dewitt
11 months ago
Agreed! Normal distributions are so interesting.
VI
Vincent
11 months ago
I think it's definitely the average demand during lead-time.
CA
Cammy
11 months ago
But what about the stock-out risk?
TR
Truman
1 year ago
Haha, the shaded area? That's clearly the re-order point. I bet the supply manager is having a ball with this one!
MO
Moon
1 year ago
Hmm, the shaded area must represent the service level. Keeping those customers happy is key, you know?
LO
Lore
1 year ago
I think the shaded area D represents average demand during lead-time.
CA
Carry
1 year ago
The shaded area D looks like the stock-out risk to me. Gotta watch out for those pesky stock-outs, am I right?
ST
Stephaine
1 year ago
Exactly, safety stock helps ensure we can meet customer demand even during unexpected fluctuations.
LO
Lonna
1 year ago
So, it's important to have safety stock to prevent stock-outs.
TE
Terry
1 year ago
Yes, you're right! The shaded area D represents the stock-out risk.