Companies that must determine well in advance of the selling

This topic has expert replies
Master | Next Rank: 500 Posts
Posts: 367
Joined: 05 Jun 2015
Thanked: 3 times
Followed by:2 members

Companies that must determine well in advance of the selling

by NandishSS » Tue May 16, 2017 9:59 pm
Companies that must determine well in advance of the selling season how many units of a new product to manufacture often underproduce products that sell well and have overstocks of others. The increased incidence in recent years of mismatches between production and demand seems ironic, since point-of-sale scanners have improved data on consumers' buying patterns and since flexible manufacturing has enabled companies to 24 produce, cost-effectively, small quantities of goods. This type of manufacturing has greatly increased the number of new products introduced annually in the United States. However, frequent introductions of new products have two problematic side effects. For one, they reduce the average lifetime of products; more of them are neither at the beginning of their life (when prediction is difficult) or at the end of their life (when keeping inventory is expensive because the products will soon become obsolete). For another, as new products proliferate, demand is divided among a growing number of stock-keeping units (SKU's). Even though manufacturers and retailers can forecast aggregate demand with some certainty, forecasting accurately how that demand will be distributed among the many SKU's they sell is difficult. For example, a company may be able to estimate accurately the aggregate number of shoes it will sell, but it may be uncertain about which specific types of shoes will sell more than other types.

Which of the following most accurately describes the function of the last sentence in the passage (Last 2 lines)?
A.To cite a situation in which the aggregate demand is more important than the distribution of demand among SKU's
B.To refute an assertion about the side effects of flexible manufacturing
C.To illustrate an assertion about companies' ability to forecast demand
D.To provide an example of ways in which companies address the difficulties of forecasting demand
E.To note an exception to the author's assertion about distributing demand among SKU's

OA:C

The passage suggests which of the following about divided demand among a growing number of SKU's?
A. It has increased the average lifetime of products.
B. It has resulted from retailer's attempts to predict demand more accurately and
avoid both understocks and overstocks.
C. It has decreased the use of flexible manufacturing by companies.
D. It has not increased the expense of keeping inventory of certain products.
E. It has not prevented companies from predicting aggregate demand with some certainty.

OA:E Why not B

According to the passage, which of the following has led to growth in the number of new products introduced in the United States each year?
A. Reduced average lifetime of products
B. Increased ability to forecast aggregate demand
C. More cost-effective ways of keeping inventory for products
D. Cost-effective production of small quantities of goods
E. Increased ability to divide demand among a number of SKU's and to forecast how that demand will be distributed among those SKU'

OA:[spoiler]D Why not A [/spoiler]

Source:GMATPrep EP1

Hi ceilidh.erickson, [email protected], GMATGuruNY

Thanks And Regards
Nandish

Legendary Member
Posts: 2663
Joined: 14 Jan 2015
Location: Boston, MA
Thanked: 1153 times
Followed by:127 members
GMAT Score:770
by [email protected] » Sun May 21, 2017 10:16 am
Which of the following most accurately describes the function of the last sentence in the passage (Last 2 lines)?

A.To cite a situation in which the aggregate demand is more important than the distribution of demand among SKU's
B.To refute an assertion about the side effects of flexible manufacturing
C.To illustrate an assertion about companies' ability to forecast demand
D.To provide an example of ways in which companies address the difficulties of forecasting demand
E.To note an exception to the author's assertion about distributing demand among SKU's

The second-to-last sentence tells us that while manufacturers and retailers can accurately forecast aggregate demand, they're not great at forecasting the specific composition of that demand. Then we get an example of this. So we're getting an assertion about companies' ability to forecast demand (better at the general than the specific) and then we're getting an illustration of this assertion (total shoes vs. types of shoes.) This is best captured in C
Veritas Prep | GMAT Instructor

Veritas Prep Reviews
Save $100 off any live Veritas Prep GMAT Course Legendary Member Posts: 2663 Joined: 14 Jan 2015 Location: Boston, MA Thanked: 1153 times Followed by:127 members GMAT Score:770 by [email protected] » Sun May 21, 2017 10:21 am The passage suggests which of the following about divided demand among a growing number of SKU's? A. It has increased the average lifetime of products. B. It has resulted from retailer's attempts to predict demand more accurately and avoid both understocks and overstocks. C. It has decreased the use of flexible manufacturing by companies. D. It has not increased the expense of keeping inventory of certain products. E. It has not prevented companies from predicting aggregate demand with some certainty. OA: E Why not B Again, we can go back to the end of the passage: Even though manufacturers and retailers can forecast aggregate demand with some certainty, forecasting accurately how that demand will be distributed among the many SKU's they sell is difficult. So we're told explicitly that companies are good at predicting aggregate demand. This is what we get from E B isn't consistent with what we're told. It's the frequent introduction of new products that has led to the proliferation of SKU's, not attempts to accurately predict demand. Veritas Prep | GMAT Instructor Veritas Prep Reviews Save$100 off any live Veritas Prep GMAT Course

Legendary Member
Posts: 2663
Joined: 14 Jan 2015
Location: Boston, MA
Thanked: 1153 times
Followed by:127 members
GMAT Score:770
by [email protected] » Sun May 21, 2017 10:25 am
According to the passage, which of the following has led to growth in the number of new products introduced in the United States each year?
A. Reduced average lifetime of products
B. Increased ability to forecast aggregate demand
C. More cost-effective ways of keeping inventory for products
D. Cost-effective production of small quantities of goods
E. Increased ability to divide demand among a number of SKU's and to forecast how that demand will be distributed among those SKU'

OA:D Why not A
We get the answer here: Flexible manufacturing has enabled companies to 24 produce, cost-effectively, small quantities of goods. This type of manufacturing has greatly increased the number of new products introduced annually in the United States.

A is incorrect because the reduced average lifetime is an effect of the growth in new products, not a cause.
Veritas Prep | GMAT Instructor

Veritas Prep Reviews
Save \$100 off any live Veritas Prep GMAT Course

GMAT/MBA Expert

GMAT Instructor
Posts: 2094
Joined: 04 Dec 2012
Thanked: 1443 times
Followed by:245 members
by ceilidh.erickson » Sun May 21, 2017 3:50 pm
NandishSS wrote: Hi ceilidh.erickson, [email protected], GMATGuruNY

Thanks And Regards
Nandish
Looks like David provided some great explanations here! Let me know if there's anything else I can help to explain.
Ceilidh Erickson
EdM in Mind, Brain, and Education
Harvard Graduate School of Education

Senior | Next Rank: 100 Posts
Posts: 38
Joined: 17 Dec 2015

Re:

by gui_guimaraes » Thu May 28, 2020 4:42 pm
ceilidh.erickson wrote:
Sun May 21, 2017 3:50 pm
NandishSS wrote: Hi ceilidh.erickson, [email protected], GMATGuruNY