Ch. 13

Question 1

Inventory

Answer 1

a stock or store of goods

Question 2

Little’s Law

Answer 2

the average amount of inventory in a system is equal to the product of the average demand rate and the average time a unit is in the system

Question 3

inventory turnover

Answer 3

ratio of annual cost of goods sold to average inventory investment

Question 4

periodic system

Answer 4

physical count of items in inventory made at periodic intervals (weekly, monthly)

Question 5

perpetual inventory system

Answer 5

system that keeps track of removals from inventory continuously, thus monitoring current levels of each item

Question 6

two-bin system

Answer 6

two containers of inventory; reorder when the first is empty

Question 7

universal product code UPC

Answer 7

bar code printed on a label that has information about the item to which it is attached

Question 8

point-of-sale (POS) systems

Answer 8

record items at time of sale

Question 9

lead time

Answer 9

time interval between ordering and receiving the order

Question 10

purchase cost

Answer 10

the amount paid to buy the inventory

Question 11

holding (carrying) cost

Answer 11

cost to carry an item in inventory for a length of time, usually a year

Question 12

ordering costs

Answer 12

costs of ordering and receiving inventory

Question 13

setup costs

Answer 13

costs involved in preparing equipment for a job

Question 14

shortage costs

Answer 14

costs resulting when demand exceeds the supply of inventory; often unrealized profit per unit

Question 15

A-B-C approach

Answer 15

classifying inventory according to some measure of importance, and allocating control efforts accordingly

Question 16

cycle counting

Answer 16

a physical count of items in inventory

Question 17

cycle stock

Answer 17

the amount of inventory needed to meet expected demand

Question 18

safety stock

Answer 18

extra inventory carried to reduce the probability of a stockout due to demand and/or lead time variability

Question 19

Economic order quantity

Answer 19

EOQ - the order size that minimizes total annual cost.

Question 20

6 assumptions of EOQ

Answer 20

1. only one product is involved
2. annual demand req’s are known
3. demand is spread evenly throughout the year so that the demand rate is reasonably constant
4. lead time is known and constant
5. each order is received in a single delivery
6. there are no quantity discounts

Question 21

quantity discounts

Answer 21

price reductions for larger orders

Question 22

reorder point (ROP)

Answer 22

when the quantity on hand of an item drops to this amount, the item is reordered

Question 23

safety stock

Answer 23

stock that is held in excess of expected demand due to variable demand and/or lead time

Question 24

service level

Answer 24

probability that demand will not exceed supply during lead time

Question 25

fill rate

Answer 25

the percentage of demand filled by the stock on hand

Question 26

fixed-order-interval model (FOI)

Answer 26

orders are placed at fixed time intervals

Question 27

single-period model

Answer 27

model for ordering of perishables and other items with limited useful lives

Question 28

shortage cost

Answer 28

generally, the unrealized profit per unit

Question 29

excess cost

Answer 29

difference between pruchase cost and salvage value of items left over at the end of a period