Chapter 11: Inventory

Question 1

According to APICS, those stocks or items used to support production (raw materials and work-in-Process items), supporting activities (maintenance, repair, and operating supplies) and customer service (finished goods and spare parts)

Answer 1

Inventory

Question 2

Components or products that are received in bulk by a downstream partner, gradually used up, and then replenished again in bulk by the upstream partner

Answer 2

Cycle stock

Question 3

Extra inventory that a company holds to protect itself against uncertainties in either demand or replenishment time

Answer 3

Safety stock

Question 4

Inventory that is help in anticipation of customer demand

Answer 4

Anticipation inventory

Question 5

According to APICS, a form of inventory buildup to buffer against some event that may not happen. This involves speculation related to potential labor strikes, price increases, unsettled governments, and events that could severely impair the company’s strategic initiatives

Answer 5

Hedge inventory

Question 6

Inventory that is moving from one link in the supply chain to another

Answer 6

Transportation inventory

Question 7

Inventory that is used to smooth out differences between upstream production levels and downstream demand

Answer 7

Smoothing inventory

Question 8

Business conditions that force companies to hold inventory

Answer 8

Inventory drivers

Question 9

The risk of interruptions in the flow of components from upstream suppliers

Answer 9

Supply uncertainty

Question 10

The risk of significant and unpredictable fluctuations in downstream demand

Answer 10

Demand uncertainty

Question 11

Inventory items whose demand levels are beyond a company’s complete control

Answer 11

Independent demand inventory

Question 12

Inventory items whose demand levels are tied directly to a company’s planned production of another item

Answer 12

Dependent demand inventory

Question 13

An inventory system that is used to manage independent demand inventory. The inventory level for an item is checked at regular intervals and restocked to some predetermined level

Answer 13

Periodic review system

Question 14

A term used to indicate the amount of demand to be met under conditions of demand and supply uncertainty; assumes that the demand during the reorder period and the order lead time is normally distributed

Answer 14

Service level

Question 15

An inventory system used to manage independent demand inventory. The inventory level for an item is constantly monitored, and when the reorder point is reached, an order is released

Answer 15

Continuous review system

Question 16

The order quantity that minimizes annual holding and ordering costs for an item; the relationship between yearly holding costs, yearly ordering costs and the order quantity

Answer 16

Economic order quantity (EOQ)

Question 17

A system used when demand occurs in only a single point in time

Answer 17

Single-period inventory

Question 18

For a single period inventory system, the service level at which the expected cost of a shortage equals the expected cost of having excess units

Answer 18

Target service level (SLt)

Question 19

For a single period inventory system, the stocking point at which the expected cost of a shortage equals the expected cost of having excess units

Answer 19

Target stock point (TS)

Question 20

According to APICS, an extreme change in the supply position upstream in a supply chain generated by a small change in demand downstream in the supply chain

Answer 20

Bullwhip effect

Question 21

Holding safety stock in a single location instead of multiple locations. Several locations then share safety stock inventories to lower overall holding costs by reducing overall safety stock levels

Answer 21

Inventory pooling

Question 22

A purpose of inventory is to maintain

Answer 22

Independence of operations

Question 23

A purpose of inventory is to meet

Answer 23

Variation in product demand

Question 24

A purpose of inventory is to provide a

Answer 24

Safeguard for variation in raw material delivery time

Question 25

To provide a safeguard for variation in raw material delivery time there needs to be protection from what three things

Answer 25

Supplier delays Shortages in supply Quality problems

Question 26

A purpose of inventory is to allow

Answer 26

Flexibility in production scheduling

Question 27

A purpose of inventory is to take

Answer 27

Advantage of quantity discounts (economic purchase order size)

Question 28

Example used to demonstrate inventory

Answer 28

Wheeled coach video

Question 29

The amount required to bring the inventory level back up to restocking level (R)

Answer 29

Order quantity (Q)

Question 30

In a periodic review system Order quantity (Q) equals

Answer 30

R (restocking level) - I (inventory level at the time of review)

Question 31

Under the periodic review system the restocking level is equal to

Answer 31

Average demand during the reorder period and the order lead time + the z score ( standard deviation of demand during the reorder point and the order lead time)

Question 32

One of the key features of the continuous review system is that inventory levels are

Answer 32

Monitored constantly and replenishment order is issued only when a pre-establishes reorder point has been reached

Question 33

One of the key features of the continuous review system is that the size of a replenishment order is

Answer 33

Typically based on the trade-off between holding costs and ordering costs

Question 34

One of the key features of the continuous review system is that the reorder point is based on both

Answer 34

Demand and supply consideration, as well as on how much safety stock managers want to hold

Question 35

One of the assumptions of the continuous review system is that the inventory item we are interested in has a

Answer 35

Constant demand period (d). That is there is no variability in demand from one period to the next. Demand for the year is D.

Question 36

One of the assumptions of the continuous review system is that L is

Answer 36

The lead time, or number of periods that must pass before a replenishment order arrives. L is also constant

Question 37

One of the assumptions of the continuous review system is that H is

Answer 37

The cost of holding a single unit of inventory for a year. It includes the cost of the space needed to store the unit, the cost of potential obsolescence, and the opportunity cost of tying up the organization’s funds in inventory. H is known and fixed

Question 38

One of the assumptions of the continuous review system is that S is

Answer 38

The cost of placing an order, regardless of the order quantity. S is also known and fixed

Question 39

One of the assumptions of the continuous review system is that P, the price of each unit is

Answer 39

Fixed

Question 40

When the demand rate and lead time are constant in a continuous review system the ROP is equal to

Answer 40

d(L)

Question 41

In a continuous review system yearly holding cost is equal to

Answer 41

Average inventory level * per unit holding cost

Question 42

In a continuous review system, the yearly ordering cost is equal to

Answer 42

Number of orders per year * fixed ordering cost

Question 43

Another word for holding cost is

Answer 43

Carrying cost

Question 44

The formula for the economic order quantity is

Answer 44

Q = sqrt(2DS/H)

Question 45

Any quantity with a .000 something is

Answer 45

Rounded up

Question 46

When either demand rate (d) or lead time (L) both varies, the formula for the ROP is

Answer 46

(d bar * L bar) + SS

Question 47

The decision of how much safety stock to hold depends on what five factors

Answer 47

``` The variability of demand The variability of lead time The average length of lead time The desired service level The average demand ```

Question 48

Curvy lines represent what in demand

Answer 48

Variability

Question 49

Higher z values lower

Answer 49

The probability of a stockout

Question 50

If given a standard deviation and calculating safety stock you need to

Answer 50

Square it to get the variance

Question 51

If given the variance when calculating safety stock

Answer 51

Do not square bc that is Sigma squared

Question 52

Where you are holding your inventory refers to

Answer 52

Inventory positioning

Question 53

Inventory positioning results in what two things

Answer 53

Increase in cost and decrease in flexibility Flexibility would increase if you held inventory closer to where it’s being manufactured

Question 54

Inventory in the supply chain deals with

Answer 54

Inventory positioning | Transportation, Packaging and Material Handling Considerations