Chap 12

Question 1

Definition of inventory

Answer 1

Stock of items kept to meet future demand

Question 2

Definein dependant demand and dependant demand

Answer 2

Independant demand: Demand for finished goods or other end items that are sold to someone. It cannot be predicted

Dependant demand: sub assemblies or component parts used in the production of a final finished product. Is “lumpy”

Question 3

What are the 4 types of inventory

Question 4

List the 6 reasons for a company to hold inventory

Answer 4

Question 5

What is the objective of inventory control

Answer 5

To achieve satisfactory levels of customer service while keeping inventory costs within reasonable bounds

Question 6

What is a warehouse management system (WMS)

Answer 6

computer software that controls the movement and storage of materials within a warehouse, and processes the associated transactions

Question 7

What are the 3 main concern of a business with inventory

Answer 7

• Security
• Safety
• Obsolescence

Question 8

What are the 2 inventory counting system

Answer 8

• Perpetual (continuous) tracking
• Periodic counting

Question 9

Definition of periodic counting

Answer 9

Physical count of items made at periodic intervals

Question 10

Definition of perpetual tracking

Answer 10

keeps track of removals from and additions to inventory continuously, thus providing current levels of each item

Question 11

4 things used for inventory replenishment

Answer 11

• RFID
• 2 bin system
• Fixed Order Quantity/Reorder Point Model*
• Bar code

Question 12

Define the reorder point model / Fixed order quantity

Answer 12

An order of a fixed size is placed when the amount on hand drops below a minimum quantity called the reorder point

Question 13

Definition of lead time

Answer 13

time interval between ordering and receiving the order

Question 14

What are the 3 inventory costs

Answer 14

• Holding cost*
• Ordering cost*
• Shortage cost

* are the 2 costs concidered for the calculation of the EOQ

Question 15

Definition of ordering cost

Answer 15

costs determining order quantity, preparing purchase orders, and fixed cost portion of receiving, inspection, and material handling

Question 16

What is the ABC classification system of inventory

Answer 16

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

Question 17

Definition of cycle counting of inventory

Answer 17

Regular actual count of the items in inventory on a cyclic schedule

Question 18

Fixed order quantity model : Define the Economic Order Quantity

Answer 18

The order size that minimizes total inventory control cost

Question 19

What are the 7 assumptions of the Economic Order Quantity model (EOQ)

Answer 19

1) Only one product is involved
2) Annual demand requirements known
3) Demand is even throughout the year
4) Lead time does not vary
5) Each order is received in a single delivery
6) There are no quantity discounts
7) Shortage is not allowed

Question 20

What are the 3 advantages of the Economic Order Quantity (EOQ) Model

Answer 20

• The EOQ model is robust
• It works even if all parameters and assumptions are not met
• The total cost curve is relatively flat near the EOQ

Question 21

Define the Economic Production Quantity model (EPQ)

Answer 21

It is similar to the Economic Order Quantity model, except orders are received incrementally during production

Question 22

Definition of reorder point

Answer 22

When inventory level drops to this amount, the item is reordered.

Question 23

Definition of safety stock

Answer 23

Stock that is held in excess of expected demand due to variability of demand and/or lead time.

Question 24

What are the 4 determinants of reorder point

Answer 24

• Rate of demand
• Lead Time
• Demand / Lead time variability
• Safety stock