Ch 12 - Inventory Management

Question 1

raw materials

Answer 1

purchased items or extracted materials transformed into components or products

Question 2

components

Answer 2

parts or subassemblies used in the final product

Question 3

work-in-process (WIP)

Answer 3

items in process throughout the plant

Question 4

finished goods

Answer 4

products sold to customers

Question 5

distribution inventory

Answer 5

finished goods in the distribution system

Question 6

anticipation or seasonal inventory

Answer 6

inventory built in anticipation of future demand

Question 7

fluctuation inventory or safety stock

Answer 7

provides a cushion against unexpected demand; also called buffer or reserve stock

Question 8

lot-size inventory

Answer 8

a result of the quantity ordered or produced

Question 9

transportation or pipeline inventory

Answer 9

inventory in movement between locations

Question 10

speculative or hedge inventory

Answer 10

used to protect against some future event

Question 11

maintenance, repair, and operating (MRO) inventory

Answer 11

items used in support of manufacturing and maintenance

Question 12

customer service

Answer 12

the ability to satisfy customer requirements

Question 13

percentage of orders shipped on schedule

Answer 13

a customer service measure appropriate for use when orders have similar value

Question 14

percentage of line items shipped on schedule

Answer 14

a customer service measure appropriate when customer orders vary in number of line items ordered

Question 15

percentage of dollar volume shipped on schedule

Answer 15

a customer service measure appropriate when customer orders vary in value

Question 16

setup cost

Answer 16

costs such as scrap costs, calibration costs, and downtime costs associated with preparing the equipment for the next product being produced

Question 17

inventory turnover

Answer 17

a measure of inventory policy effectiveness

Question 18

weeks of supply

Answer 18

a measure of inventory policy effectiveness

Question 19

item cost

Answer 19

includes price paid for the item plus other direct costs associated with the purchase

Question 20

holding costs

Answer 20

include the variable expenses incurred by the plant related to the volume of inventory held

Question 21

capital costs

Answer 21

the higher of either the cost of the capital or the opportunity cost for the company

Question 22

storage costs

Answer 22

include the variable expenses for space, workers, and equipment related to the volume of inventory held

Question 23

risk costs

Answer 23

include obsolescence, damage or deterioration, theft, insurance, and taxes associated with the volume of inventory held

Question 24

ordering costs

Answer 24

the fixed costs associated with either placing an order with a supplier or setup costs incurred for in-house production

Question 25

shortage costs

Answer 25

incurred when demand exceeds supply

Question 26

back order

Answer 26

delaying delivery to the customer until the item becomes available

Question 27

lost sale

Answer 27

occurs when the customer is not willing to wait for delivery

Question 28

Pareto's law

Answer 28

About 20% of the inventory items will account for about 80% of the inventory value

Question 29

ABC classification

Answer 29

a method for determining level of control and frequency of review of inventory items

Question 30

continuous review system

Answer 30

update inventory balances after each inventory transaction

Question 31

periodic review system

Answer 31

requires regular periodic reviews of the on-hand quantity to determine the size of the replenishment order

Question 32

two-bin system

Answer 32

one bin with enough stock to satisfy demand during replenishment time is kept in the storeroom; the other bin is placed on the manufacturing floor

Question 33

lead time

Answer 33

time from order placement to order receipt

Question 34

periodic counting

Answer 34

a physical inventory is taken periodically, usually annually

Question 35

cycle counting

Answer 35

prespecified items are counted daily

Question 36

vendor-managed inventory (VMI)

Answer 36

the supplier maintains an inventory at the customer's facility

Question 37

stock-keeping unit (SKU)

Answer 37

an item in a particular geographic location

Question 38

lot-for-lot

Answer 38

the company orders exactly what is needed

Question 39

fixed-order quantity

Answer 39

specifies the number of units to order whenever an order is placed

Question 40

min-max system

Answer 40

places a replenishment order when the on-hand inventory falls below the predetermined minimum level. An order is placed to bring the inventory back up to the maximum inventory level

Question 41

order "n" periods

Answer 41

the order quantity is determined by total demand for the item for the next "n" periods

Question 42

economic order quantity (EQ)

Answer 42

an optimizing method used for determining order quantity and reorder points

Question 43

economic production quantity (EPQ)

Answer 43

a model that allows for incremental product delivery

Question 44

perpetual inventory record

Answer 44

provides an up-to-date inventory balance

Question 45

quantity discount model

Answer 45

modifies the EOQ process to consider cases where quantity discounts are available

Question 46

Single-period model

Answer 46

designed for use with products that are highly perishable

Question 47

order-cycle service level

Answer 47

the probability that demand during lead time will not exceed on-hand inventory

Question 48

target inventory level (TI)

Answer 48

used in determining order quantity in the periodic review system. Target inventory less on-hand inventory equals order quantity