The business value of an effective supply chain management system includes all of the following except:

Question

BlackTom AI · Accepted Answer

Effective supply chain management reduces total inventory and lead times while increasing responsiveness and customer service; therefore "increased inventory levels" is not a business value of an effective SCM system.

1) Relevant knowledge points and concepts
- Goals of SCM: reduce costs, shorten lead times, improve delivery performance, align supply with demand, and increase market responsiveness.
- Inventory components: cycle stock = (demand × lead time)/2, plus safety stock which depends on demand variability and lead-time variability.
- Techniques: just-in-time (JIT), better forecasting, information sharing, and pull systems reduce both cycle and safety stock and mitigate the bullwhip effect.

2) Step-by-step reasoning
- If SCM is effective, lead times fall and forecasts improve.
- Lower lead time → lower cycle stock (since cycle stock ∝ lead time).
- Reduced variability and improved visibility → lower safety stock.
- Lower total inventory and higher inventory turnover reduce holding costs while maintaining or improving service levels.
- Thus an effective SCM yields cost reduction, supply matched to demand, faster time to market, and improved delivery service — but not higher inventory.

3) Illustrative calculation (intermediate steps)
Assume demand = 100 units/week.
- Initial lead time = 4 weeks → cycle stock = 100 × 4 / 2 = 200 units.
- Improved lead time = 2 weeks → cycle stock = 100 × 2 / 2 = 100 units.
- Inventory reduction = 200 − 100 = 100 units (50% reduction in cycle stock).
This demonstrates how SCM improvements reduce, not increase, inventory.

4) Why the correct answer is correct
Because the business benefits of effective SCM are to lower inventory while improving service and reducing costs. "Increased inventory levels" contradicts those objectives.

5) Why the other options are benefits
- Faster time to market: better coordination and responsiveness shorten lead times.
- Cost reduction: lower holding, shortage, and operational costs.
- Supply matched to demand: improved forecasting and pull systems align supply with actual demand.
- Improved delivery service: better planning and execution increase on-time delivery and reliability.

Conclusion: The option that is not a business value of effective SCM is "increased inventory levels." This matches the provided answer: increased inventory levels.

The business value of an effective supply chain management system includes all of the following except: Single choice

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