Ch 7 Inventory Management

Question 1

dependent demand definition

Answer 1

the internal demand for parts based on the demand of the final product in which the parts are used

Question 2

Ex. of dependent demand items

Answer 2

subassemblies
components
raw materials

Question 3

definition: independent demand

Answer 3

the demand for final products & has a demand pattern affected by trends, seasonal patterns and general market conditions

Question 4

why is inventory management important?

Answer 4

to avoid stockouts and excessive inventory

Question 5

what are the primary functions of inventory? pick 2

Answer 5

1. buffer from uncertainty in the marketplace

2. decouple, break the dependencies in the supply chain

Question 6

what is safety (buffer) stock? related to decouple

Answer 6

can be used to cushion uncertainties due to fluctuation in supply, demand and/or delivery time

Question 7

what are the 4 broad categories of inventories?

Answer 7

raw materials
work in process (WIP)
finished goods
maintenance, repair & operating (MRO)

Question 8

what is work in process (WIP)?

Answer 8

partially processed materials not yet ready for sales

Question 9

what are finished goods?

Answer 9

products ready for shipment

Question 10

what is maintenance, repair & operating (MRO)?

Answer 10

materials used in production (ex. cleaners & brooms)

Question 11

what are the 7 categories of inventory costs?

Answer 11

direct costs
indirect costs
fixed costs
variable costs
order costs
setup costs
holding or carrying costs

Question 12

what are direct costs?

Answer 12

directly traceable to unit produced

Question 13

ex. of a direct cost

Answer 13

amount of labor and materials used to produce the finished good

Question 14

indirect costs

Answer 14

cannot be traced directly to the unit produced

Question 15

ex. of an indirect cost

Answer 15

maintenance
repair
supplies

Question 16

fixed costs

Answer 16

independent of the output quantity

Question 17

ex. of a fixed cost

Answer 17

buildings

equipment

Question 18

variable costs

Answer 18

vary with output level

Question 19

ex. of variable costs

Answer 19

materials

Question 20

order costs

Answer 20

direct variable costs for making an order

Question 21

setup costs

Answer 21

related to machine setups to produce a batch of product

Question 22

holding or carrying costs

Answer 22

incurred for holding inventory in storage

Question 23

what is cycle counting for ? ex. Walmart inventory night

Answer 23

to reconcile discrepancies between their physical inventory and inventory record on a monthly or quarterly basis

Question 24

ABC inventory control system

Answer 24

determines which inventories should be counted & managed more closely than others

Question 25

A items

Answer 25

account for 20% of total items and 80% of total inventory cost

Question 26

B items

Answer 26

account for the other 40% of total items & 15% total inventory cost

Question 27

C items

Answer 27

account for the remaining 40% of total items & 15% of total inventory cost

Question 28

what is ABC inventory system prioritization based on? pick 3

Answer 28

annual dollar usage
shelf life
sales volume

Question 29

what is radio frequency identification (RFID) for

Answer 29

to track an indivi. unit of good

Question 30

why use RFID?

Answer 30

ability to store huge amounts of info to differentiate goods at the item level

Question 31

what is the economic order quantity (EOQ) model?

Answer 31

to determine the order size where annual inventory holding costs equal annual ordering costs

Question 32

assumptions of the EOQ model. pick 7

Answer 32

demand, order lead time, holding cost, and ordering cost is known & constant
replenishment is instantaneous
price is constant
stockouts not allowed