4.4e Inventory Control

Question 1

Inventory control definition

Answer 1

Way of ensuring a business is flexible and can satisfy the demand for its products

Question 2

When are low inventory levels useful?

Answer 2

• Rent on property is high
• You sell a perishable good
• You have cash flow problems

Question 3

Advantages of low inventory levels

Answer 3

• Reduce costs and have lower opportunity costs for your cash
• Less likely that stock will get damaged, go out of date or suffer from obsolescence

Question 4

When are high inventory levels useful?

Answer 4

• When business can buy resources in bulk
• Product sold has unpredictable levels of demand
• Business has plenty of available storage

Question 5

Advantages of high inventory levels

Answer 5

• More likely to meet customer demand

- Lower unit costs through bulk buying

Question 6

Inventory chart definition

Answer 6

Diagram that is used to monitor levels of inventory over a particular period of time
(See diagram)

Question 7

What is the gap between the minimum level and having no stock called on an inventory chart?

Answer 7

Buffer stock

Question 8

Buffer stock definition

Answer 8

The amount held as a contingency in case of unexpected orders or in case of any delays from suppliers

Question 9

Lead time definition

Answer 9

Amount of time between placing the order and receiving the stock

Question 10

Three factors that reorder level depends upon

Answer 10

1. Lead time from supplier
2. Demand for the product
3. If the market is very competitive

Question 11

Inventory wastage definition

Answer 11

Loss of inventory without it being sold

Question 12

Inventory rotation definition

Answer 12

Making sure that new inventory is not placed in front of old inventory.

Question 13

Re-order level formula

Answer 13

Re-order level = lead time (days) x average daily use + buffer stock level