Asked by Susan Nguyen on Jun 11, 2024
Verified
Describe the two key factors that influence the optimal level of product availability within a supply chain.
Product Availability
Refers to the extent to which goods are in stock and accessible for purchase by consumers.
Optimal Level
The best, most favorable, or ideal level of performance, output, or operation under specific conditions.
Supply Chain
The network of all the individuals, organizations, resources, activities, and technology involved in the creation and sale of a product, from the delivery of source materials from the supplier to the manufacturer, and to its eventual delivery to the end user.
- Appreciate the complexity of supply chain decisions, including trade-offs between different strategies to improve profitability.
Verified Answer
Cost of overstocking the product
Cost of understocking the product
The cost of overstocking is denoted by Co and is the loss incurred by a firm for each unsold unit at the end of the selling season.The cost of understocking is denoted by Cu and is the margin lost by a firm for each lost sale because there is no inventory on hand.The cost of understocking should include the margin lost from current as well as future sales if the customer does not return.The costs of overstocking and understocking have a direct impact on both the optimal cycle service level and profitability.
Learning Objectives
- Appreciate the complexity of supply chain decisions, including trade-offs between different strategies to improve profitability.
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