Chapter 12

Question 1

What are independent-demand items?

Answer 1

Items that are ready to be sold or used

Question 2

What are 6 types of inventory?

Answer 2

1) Raw Materials
2) WIP
3) Finished Goods
4) Tools and supplies
5) Maintenance and repairs inventory
6) Goods in transit

Question 3

What are the 8 functions of Inventory?

Answer 3

1) To meet customer demand
2) To smooth production requirements
3) To decouple operations
4) Reduce risk of stockouts
5) Take advantage of order cycles
6) To hedge against price increases
7) To permit operations
8) Take advantage of Qty discounts

Question 4

What is Little’s Law?

Answer 4

States that 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 5

Intermediate stocking of goods leads to _____ throughout a production distribution system

Answer 5

Pipeline Inventories

Question 6

What are pipeline inventories?

Answer 6

Goods in transit to warehouses, distributors, or customers

Question 7

What is the overall objective of inventory management?

Answer 7

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

Question 8

What are the two basic issues/decisions for inventory management?

Answer 8

1) When to order?
2) How much to order?

Question 9

____ is the ratio of annual costs of goods sold to average inventory investment

Answer 9

Inventory Turnover

Question 10

The turnover indicates ____

Answer 10

How many times a year the inventory is sold

Question 11

What are the 5 requirements for effective inventory management?

Answer 11

1) Keep track of inventory
2) Forecast demand
3) Knowledge of lead times
4) Reasonable cost estimates
5) Item classification system

Question 12

Under a ____ system, a physical count of inventory is made at periodic, fixed intervals

Answer 12

Periodic system

Question 13

A perpetual inventory system keeps track of ______

Answer 13

Removals from inventory on a continuous basis, so the system can provide information on the current level of inventory of each item

Question 14

What is the two-bin system?

Answer 14

System uses two containers for inventory, the company reorders when the first is empty

Question 15

____ is a barcode printed on a label that has information about the item to which it is attached

Answer 15

Universal Product Code (UPC)

Question 16

____ electronically record actual sales

Answer 16

Point-of-sale (POS) systems

Question 17

Stock keeping units (SKU’s) are ______

Answer 17

Alphanumerical codes used to identify product’s traits, such as brand, size, color, price

Question 18

____ tags are used to keep track of inventory in certain applications

Answer 18

Radio frequency identification (RFID) tags

Question 19

What are examples of Holding/Carrying costs?

Answer 19

Interest, insurance, taxes, depreciation, warehousing costs

Question 20

____ are costs to carry an item in inventory for a length of time

Answer 20

Holding/carrying costs

Question 21

Ordering costs are generally expressed as _____

Answer 21

Fixed dollar amount per order, regardless of order size

Question 22

____ are the costs involved in preparing equipment/machinery for a job

Answer 22

Setup costs

Question 23

Setup costs are analogous to ordering costs, meaning ____

Answer 23

They are expressed as a fixed charge per production run

Question 24

The _____ approach classifies inventory items according to some measure of importance

Answer 24

A-B-C approach

Question 25

The Economic Order Quantity (EOQ) Model identify ____

Answer 25

The optimal order quantity by minimizing the sum of certain annual costs that vary with order size and order frequency

Question 26

______ is used to identify a fixed order size that will minimize the sum of the annual costs of holding/ordering inventory

Answer 26

Basic EOQ model

Question 27

What are price breaks?

Answer 27

Minimum quantities needed to obtain discounts

Question 28

The EOQ models answer the question of how much to order, but not _____

Answer 28

The question of when to order

Question 29

What is the reorder point (ROP)?

Answer 29

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

Question 30

Inventory that is intended to meet expected demand is known as ____

Answer 30

Cycle stock

Question 31

What is safety stock?

Answer 31

Extra inventory held to reduce the probability of a stockout

Question 32

What are the 4 determinants of the reorder point quantity?

Answer 32

1) Rate of demand
2) Lead time
3) Extent of demand variability
4) Degree of stockout risk acceptable to management

Question 33

What is the fill rate?

Answer 33

The percentage of demand filled by the stock on hand

Question 34

The ______ is used when orders must be placed at fixed time intervals

Answer 34

Fixed-order interval (FOI) model

Question 35

What model is referred to as the newsboy problem?

Answer 35

Single-period model

Question 36

The single-period model is used to ____

Answer 36

Handle the ordering of perishables and item that have a limited useful life

Question 37

What is the difference between purchase cost and salvage value of items left over at the end of a period?

Answer 37

Excess cost

Question 38

What is the goal of a single-period model?

Answer 38

To identify the order quantity that will minimize the long-run excess cost per unit