2. TobwhatbextentbisbDinsmore’sbhotelbabqualitybestablishment?
Thebbestbapproachbherebisbtoblistbthebvariousbproblemsbandbfrustrationsbencounteredbbybthebautho
rbbeginningbwithbthebarrival.bItbisbimportantbthatbthebstudentsbunderstandbthatbthesebarebexamplesb
ofbmomentsbofbtruthb–beventsbthatbaffectbhowbthebcustomerbperceivesbthebcompany:
• Thebdoormanbwillbnotbhelpbthebauthorbgobfrombhisbcarbtobtheblobby;binformsbthebauthorbt
hatbhebcouldbonlybleavebthebcarbforb10bminutesbbeforebitbwasbtowed.
• Authorbretrievesbluggagebwithoutbanybhelpbfrombthebdoormanb(exceptbforbhimblendingbt
hebauthorbanbumbrella).
• Nobonebseemsbtobgreatbthebauthorbwhenbhebgetsbtobthebdeskb(theybwerebtalkingbwithbeachbo
ther).
• Nobonebcanbfindbhisbreservationb(that’sbokaybbecausebtherebareblotsbofbextrabrooms).
• Takesbthreebringsbbeforebabbellhopbcomesbtobhelp
• Roombwasbnotbmadebup.
• Dinsmore’sbofficebisbcluttered.
• Onebofbthebelevatorsbwasbnotbworking.
• SecretarybrefersbtobDinsmorebasbElmerb(showsbunacceptablebinformality).
• Readbbookbwhilebauthorbwaits.
• Offersbcoffeebwithbthebwarningbthatbthebhotelbcoffeebwasbbad.
• Nobsympathybforbthebfactbthatbthebauthorbwasbwetbbecausebthebroombwasbnotbmadebup.
• Dinsmorebpoorlybdressed.
12-131
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
, • Magazine/newspaperbstandb–bpoor.
3. WhatbdobyoubthinkbofbDinsmore’sbhandlingbofbthebdisputebinvolvingbthebvacuumb
cleaners?
• Dinsmorebdidbeverythingbwrong:
• Hebjumpsbintobthebdiscussionbwithoutbhavingballbofbthebfacts.
• Heboverridesbthebauthoritybofbhisbheadbhousekeeper.
• Hisbsolutionbattemptsbthebsymptomb(theblackbofbvacuumbcleaners),bnotbthebrootbcauseb(
hallwaysbarebnotbclean).
4. WhatbwouldbyoubrecommendbtobDinsmorebaboutbthebmanagerbofbthebrestaurant?
• Keepbhim;bthebrestaurantbisbthebonlybpartbofbthebhotelbthatbisbdoingbabgreatbjob.
5. Ifbyoubwerebhiredbasbabconsultantbbybthebownersbofbthisbhotel,bwhatbwouldbyoubdo?
Why?
• Beforebmakingbanybrecommendations,bmakebsurebyoubreallybunderstandbwhybDinsmoreb
didbwhatbhebdid.bForbexample,bifbDinsmorebwasbtoldbtobreducebcosts,bthenbhisbactionsbma
kebsense.
• Listbthebobservationsbregardingbthebpoorbqualitybofbthebhotel.
• Recommendbthatbabnewbmanagerbbebbroughtbin.bEvenbifbDinsmorebisbnotbtobblame,bhebisbs
tillbresponsiblebforbwhatbisbgoingbonbinbthebhotel.bHebmustbbebfiredbtobsignalbtobeveryoneb
withinbthebhotelbthatbabsignificantbchangebisbnowbtakingbplace.
• Abtotalbplanbforbimprovingbqualitybatbthebhotelbmustbbebdevelopedbandbimplemented.
Chapterb07bMan
agingbInventories
SuggestedbAnswersbtobDiscussionbQuestions
1. Whybdobsomebexecutivesbbelievebthatbinventorybisb“bad”?bExplainbwhybthisbthinkingbisbincorrect.
12-132
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
,Somebexecutivesbthinkbthatbinventorybisb“bad”bbecausebinventorybhasbabsignificantbfinancialbimpactbonb
anborganization.bFrombthebstandpointbofbfinancialbaccounting,binventorybrepresentsbbothbanbassetbon
thebbalancebsheetbasbwellbasbabcostbthatbimpactsbthebprofitabilitybofbanybfirm.bHowever,binventorybplaysb
manybsignificantbrolesbinbanborganizationbandbfailurebtobhavebinventorybinbstockbalsobresultsbinbcost,bsuch
asblostbsalesband,bpotentially,blostbcustomersbduebtobdissatisfaction.bOr,babproductionbplantbwhichbhasbn
b
obinventorybofbneededbcomponentsbmaybhavebtobshutbdown,bresultingbinbsignificantbexpense.
2. Explainbthebdifferentbtypesbofbcostsbrelatedbtobinventorybplanning.
Thebdifferentbtypesbofbcostsbrelatedbtobinventorybplanningbarebproductbcosts,bcarryingbcosts,borderband
setupbcosts,bandbstockoutbcosts.bProductbcostbisbthebamountbpaidbtobsuppliersbforbthebproductsbthatbar
b
ebpurchased.bCarryingbcostsbarebthebcostsbofbholdingbinventorybsuchbasbstoragebspace,binsurance,bcostsb
ofbobsolescencebandbloss,bcostsbofbmaterialbhandling,btrackingbandbmanagement.bOrderbcostbisbabcostba
ssociatedbwithbreplenishingbinventories.bSetupbcostbincludesbadministrationbexpenses,bexpensesbofbch
angingboverborbrearrangingbabworkbcenterbtobgetbitbreadybtobproducebanbitem.bStockoutbcostbis
incurredbwhenbabcompanybdoesbnotbhavebinventorybavailablebtobmeetbdemand.
3. Explainbthebtradeoffsbinvolvedbinbthebeconomicborderbquantity.bHowbdobthesebchangebwhe
nbquantitybdiscountsbarebconsidered?
Thebtradeoffsbinvolvedbinbthebeconomicborderbquantitybareborderingbcostsbandbinventorybcarryingbcosts.
Ifbabcompanybordersbmoreboftenbwithbfewerbproductsbperborder,btheybincurbmoreborderingbcostsband
fewerbcarryingbcosts.bIfbthebcompanybordersbfewerbitemsbbutbmorebproductsbperborder,btheybincurbmore
inventorybcarryingbcostsbandbfewerborderingbcosts.bThebproductbpricebisbnotbcriticalbinbthebbasicbmodel
b
.bWhenbquantitybdiscountsbarebconsidered,bproductbpricebmustbalsobbebconsideredbsincebdifferentbord
erbquantitiesbhavebdifferentbprices.
12-133
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
, 4. Whybdoesbtotalbsystembinventorybincreasebasbabcompanybincreasesbitsbnumberbofbstockin
gblocations?
Thebvariationbinbdemandbthatbeachblocationbwillbfacebindividuallybisbgreaterbthanbthebvariationbin
demandbthatbisbfacedbbybservingbthebentirebcountrybfrombabsingleblocation.bThisboccursbbecausebfrombabsi
ngleblocation,bsomebofbthebvariationsbinbdemandbthatbexistbacrossbdifferentbmarketsbarebpartiallyboffsetbby
onebanother.bIncreasingbthebnumberbofblocationsbmeansbthatbthisboffsettingbdoesbnotboccur.bThus,
b
whilebthebtwoblocationsbwillbeachbcarrybsafetybstockbthatbisblessbthanbrequiredbbybabsingleblocation,bth
ebtotalbsafetybstockbcarriedbbybthebfirmbwillbhavebtobbebincreasedbtobprovidebthebsamebprotectionbagain
stbstockouts.
5. Earlybinbthebchapterbitbwasbstatedbthatbplanningbinventoryblevelsbisbbothbanbartbandbabscience.
Explainbinbyourbownbwordsbwhybthisbisbtrue.
Thisbisbtruebbecausebtherebarebmanybquantitativeborb“scientific”bplanningbmodelsbthatbhavebbeenbdevelop
edbtobaidbinbmakingbinventorybdecisions.bHowever,bconsiderablebjudgmentbstillbmustbbebexercised.bForbe
xample,bthebdecisionbconcerningbthebappropriateblevelbofbsafetybstockbrequires
judgmentbaboutbcustomerbreactionbtobstockouts,borbatbleastbsomebestimatesbofbthebcostbofbabstockout.bTh
esebdecisionsbarebnotbasblikelybtobbebmadebwithb“hard”bquantitativebinformation.
6. AbfirmbisbpresentlybusingbthebbasicbEOQbmodelbandbisbconsideringbswitchingbtobthebproductio
nborderbquantitybmodelb(i.e.,breceivingbgradualbdeliveriesboverbtime).bIfballbthebcostbandbdemandb
parametersbstaybthebsame,bwhatbchangesbshouldbthebfirmbexpect?
Thebfirmbshouldbexpectbdecreasedbinventorybcarryingbcosts.bSincebthebordersbwillbbebfilledbgradually,bitbw
illbsellbabportionbofbwhatbisbreceivedbinbstockbbeforebitbreceivesbthebnextbpartbofbtheborder.bTherefore,bitbwil
lbhavebtobstoreblessbinventorybandbincurblessbcarryingbcostbwhilebnotbincreasingbtheborderingbcosts.
12-134
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
Thebbestbapproachbherebisbtoblistbthebvariousbproblemsbandbfrustrationsbencounteredbbybthebautho
rbbeginningbwithbthebarrival.bItbisbimportantbthatbthebstudentsbunderstandbthatbthesebarebexamplesb
ofbmomentsbofbtruthb–beventsbthatbaffectbhowbthebcustomerbperceivesbthebcompany:
• Thebdoormanbwillbnotbhelpbthebauthorbgobfrombhisbcarbtobtheblobby;binformsbthebauthorbt
hatbhebcouldbonlybleavebthebcarbforb10bminutesbbeforebitbwasbtowed.
• Authorbretrievesbluggagebwithoutbanybhelpbfrombthebdoormanb(exceptbforbhimblendingbt
hebauthorbanbumbrella).
• Nobonebseemsbtobgreatbthebauthorbwhenbhebgetsbtobthebdeskb(theybwerebtalkingbwithbeachbo
ther).
• Nobonebcanbfindbhisbreservationb(that’sbokaybbecausebtherebareblotsbofbextrabrooms).
• Takesbthreebringsbbeforebabbellhopbcomesbtobhelp
• Roombwasbnotbmadebup.
• Dinsmore’sbofficebisbcluttered.
• Onebofbthebelevatorsbwasbnotbworking.
• SecretarybrefersbtobDinsmorebasbElmerb(showsbunacceptablebinformality).
• Readbbookbwhilebauthorbwaits.
• Offersbcoffeebwithbthebwarningbthatbthebhotelbcoffeebwasbbad.
• Nobsympathybforbthebfactbthatbthebauthorbwasbwetbbecausebthebroombwasbnotbmadebup.
• Dinsmorebpoorlybdressed.
12-131
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
, • Magazine/newspaperbstandb–bpoor.
3. WhatbdobyoubthinkbofbDinsmore’sbhandlingbofbthebdisputebinvolvingbthebvacuumb
cleaners?
• Dinsmorebdidbeverythingbwrong:
• Hebjumpsbintobthebdiscussionbwithoutbhavingballbofbthebfacts.
• Heboverridesbthebauthoritybofbhisbheadbhousekeeper.
• Hisbsolutionbattemptsbthebsymptomb(theblackbofbvacuumbcleaners),bnotbthebrootbcauseb(
hallwaysbarebnotbclean).
4. WhatbwouldbyoubrecommendbtobDinsmorebaboutbthebmanagerbofbthebrestaurant?
• Keepbhim;bthebrestaurantbisbthebonlybpartbofbthebhotelbthatbisbdoingbabgreatbjob.
5. Ifbyoubwerebhiredbasbabconsultantbbybthebownersbofbthisbhotel,bwhatbwouldbyoubdo?
Why?
• Beforebmakingbanybrecommendations,bmakebsurebyoubreallybunderstandbwhybDinsmoreb
didbwhatbhebdid.bForbexample,bifbDinsmorebwasbtoldbtobreducebcosts,bthenbhisbactionsbma
kebsense.
• Listbthebobservationsbregardingbthebpoorbqualitybofbthebhotel.
• Recommendbthatbabnewbmanagerbbebbroughtbin.bEvenbifbDinsmorebisbnotbtobblame,bhebisbs
tillbresponsiblebforbwhatbisbgoingbonbinbthebhotel.bHebmustbbebfiredbtobsignalbtobeveryoneb
withinbthebhotelbthatbabsignificantbchangebisbnowbtakingbplace.
• Abtotalbplanbforbimprovingbqualitybatbthebhotelbmustbbebdevelopedbandbimplemented.
Chapterb07bMan
agingbInventories
SuggestedbAnswersbtobDiscussionbQuestions
1. Whybdobsomebexecutivesbbelievebthatbinventorybisb“bad”?bExplainbwhybthisbthinkingbisbincorrect.
12-132
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
,Somebexecutivesbthinkbthatbinventorybisb“bad”bbecausebinventorybhasbabsignificantbfinancialbimpactbonb
anborganization.bFrombthebstandpointbofbfinancialbaccounting,binventorybrepresentsbbothbanbassetbon
thebbalancebsheetbasbwellbasbabcostbthatbimpactsbthebprofitabilitybofbanybfirm.bHowever,binventorybplaysb
manybsignificantbrolesbinbanborganizationbandbfailurebtobhavebinventorybinbstockbalsobresultsbinbcost,bsuch
asblostbsalesband,bpotentially,blostbcustomersbduebtobdissatisfaction.bOr,babproductionbplantbwhichbhasbn
b
obinventorybofbneededbcomponentsbmaybhavebtobshutbdown,bresultingbinbsignificantbexpense.
2. Explainbthebdifferentbtypesbofbcostsbrelatedbtobinventorybplanning.
Thebdifferentbtypesbofbcostsbrelatedbtobinventorybplanningbarebproductbcosts,bcarryingbcosts,borderband
setupbcosts,bandbstockoutbcosts.bProductbcostbisbthebamountbpaidbtobsuppliersbforbthebproductsbthatbar
b
ebpurchased.bCarryingbcostsbarebthebcostsbofbholdingbinventorybsuchbasbstoragebspace,binsurance,bcostsb
ofbobsolescencebandbloss,bcostsbofbmaterialbhandling,btrackingbandbmanagement.bOrderbcostbisbabcostba
ssociatedbwithbreplenishingbinventories.bSetupbcostbincludesbadministrationbexpenses,bexpensesbofbch
angingboverborbrearrangingbabworkbcenterbtobgetbitbreadybtobproducebanbitem.bStockoutbcostbis
incurredbwhenbabcompanybdoesbnotbhavebinventorybavailablebtobmeetbdemand.
3. Explainbthebtradeoffsbinvolvedbinbthebeconomicborderbquantity.bHowbdobthesebchangebwhe
nbquantitybdiscountsbarebconsidered?
Thebtradeoffsbinvolvedbinbthebeconomicborderbquantitybareborderingbcostsbandbinventorybcarryingbcosts.
Ifbabcompanybordersbmoreboftenbwithbfewerbproductsbperborder,btheybincurbmoreborderingbcostsband
fewerbcarryingbcosts.bIfbthebcompanybordersbfewerbitemsbbutbmorebproductsbperborder,btheybincurbmore
inventorybcarryingbcostsbandbfewerborderingbcosts.bThebproductbpricebisbnotbcriticalbinbthebbasicbmodel
b
.bWhenbquantitybdiscountsbarebconsidered,bproductbpricebmustbalsobbebconsideredbsincebdifferentbord
erbquantitiesbhavebdifferentbprices.
12-133
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
, 4. Whybdoesbtotalbsystembinventorybincreasebasbabcompanybincreasesbitsbnumberbofbstockin
gblocations?
Thebvariationbinbdemandbthatbeachblocationbwillbfacebindividuallybisbgreaterbthanbthebvariationbin
demandbthatbisbfacedbbybservingbthebentirebcountrybfrombabsingleblocation.bThisboccursbbecausebfrombabsi
ngleblocation,bsomebofbthebvariationsbinbdemandbthatbexistbacrossbdifferentbmarketsbarebpartiallyboffsetbby
onebanother.bIncreasingbthebnumberbofblocationsbmeansbthatbthisboffsettingbdoesbnotboccur.bThus,
b
whilebthebtwoblocationsbwillbeachbcarrybsafetybstockbthatbisblessbthanbrequiredbbybabsingleblocation,bth
ebtotalbsafetybstockbcarriedbbybthebfirmbwillbhavebtobbebincreasedbtobprovidebthebsamebprotectionbagain
stbstockouts.
5. Earlybinbthebchapterbitbwasbstatedbthatbplanningbinventoryblevelsbisbbothbanbartbandbabscience.
Explainbinbyourbownbwordsbwhybthisbisbtrue.
Thisbisbtruebbecausebtherebarebmanybquantitativeborb“scientific”bplanningbmodelsbthatbhavebbeenbdevelop
edbtobaidbinbmakingbinventorybdecisions.bHowever,bconsiderablebjudgmentbstillbmustbbebexercised.bForbe
xample,bthebdecisionbconcerningbthebappropriateblevelbofbsafetybstockbrequires
judgmentbaboutbcustomerbreactionbtobstockouts,borbatbleastbsomebestimatesbofbthebcostbofbabstockout.bTh
esebdecisionsbarebnotbasblikelybtobbebmadebwithb“hard”bquantitativebinformation.
6. AbfirmbisbpresentlybusingbthebbasicbEOQbmodelbandbisbconsideringbswitchingbtobthebproductio
nborderbquantitybmodelb(i.e.,breceivingbgradualbdeliveriesboverbtime).bIfballbthebcostbandbdemandb
parametersbstaybthebsame,bwhatbchangesbshouldbthebfirmbexpect?
Thebfirmbshouldbexpectbdecreasedbinventorybcarryingbcosts.bSincebthebordersbwillbbebfilledbgradually,bitbw
illbsellbabportionbofbwhatbisbreceivedbinbstockbbeforebitbreceivesbthebnextbpartbofbtheborder.bTherefore,bitbwil
lbhavebtobstoreblessbinventorybandbincurblessbcarryingbcostbwhilebnotbincreasingbtheborderingbcosts.
12-134
©bMcGrawbHillbLLC.bAllbrightsbreserved.bNobreproductionborbdistributionbwithoutbthebpriorbwrittenbconsentbofbMcGrawbHillb
LLC.
