Chapter 20 Inventory management

Question 1

a point where inventory is positioned to allow processes or entities in the supply chain to operate independently

Answer 1

Customer order decoupling point

Question 2

this is used when we are making a one time purchase of an item. An example might be purchasing tshirts to sell at a one time sporting event

Answer 2

The single period model

Question 3

this is used when we want to maintain an item “in stock” and when we resupply the item, a certain number of units must be ordered each time. Inventory for the item is monitored until it gets down to a level where the risk of stocking out is great enough that we are compelled to order

Answer 3

Fixed order quantity mode

Question 4

is used when the item should be in stock and ready to use. The item is ordered at certain intervals of time, for example is the delivery of different types of bread to a grocery store. The bakery supplier may have 10 or more products stocked in a store, and rather than delivering each product individually at different times, it is much more efficient to deliver all 10 together at the dame time

Answer 4

Fixed time period model

Question 5

is the stock of any item or resource used in an organization

Answer 5

Inventory

Question 6

is the set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be

Answer 6

Inventory system

Question 7

items that contribute to or become part of a firms product output. Is typically classified into raw materials, finished products, component parts, supplier, and work-in-process.

Answer 7

Manufacturing inventory

Question 8

In distribution, inventory is classified as

Answer 8

in transit

Question 9

it is being moved in the system, and warehouse, which is inventory in a warehouse or distribution center

Answer 9

In transit

Question 10

In service, inventory generally refers to the

Answer 10

tangible goods to be sold and the supplies necessary to administer the service

Question 11

The basic purpose of inventory analysis, whether in manufacturing, distribution, retail, or services is to specify

Answer 11

1. When items should be ordered and
2. How large the order should be.

Question 12

Transaction cost is dependent on

Answer 12

the level of integration and automation incorporated in the system

Question 13

an inventory control method that uses two bins to manage stock levels:
First bin: Supplies current demand
Second bin: Satisfies demand while the first bin is being replenished

Answer 13

Two bin system

Question 14

how connected systems are

Answer 14

Integration

Question 15

the demands for various items are unrelated to each other

Answer 15

Independent demand

Question 16

the need for any on item is a direct result of the need for some other item, usually a higher level item of which it is part

Answer 16

Dependent demand

Question 17

provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked

Answer 17

Inventory control system

Question 18

answers the question of how much to order when an item is purchased only one time and it is expected that it will be used and then not reorder

Answer 18

Single period problem

Question 19

Examples of single period inventory models are useful for a wide variety of service and manufacturing applications

Answer 19

1. Overbooking of airline flights
2. Ordering of fashion items
3. Any type of one time order

Question 20

Multiperiod inventory systems

Answer 20

designed to ensure that an item will be available on an ongoing basis throughout the year

Question 21

2 types of multiperiod inventory systems

Answer 21

1. Fixed order quantity/(EOQ)/Q-model
2. Fixed time period model/P-model

Question 22

an inventory control model where the amount requestioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory (event triggered) (this event may take place at any time, depending on the demand for the items considered) (is perpetual system, which required that every time a withdrawal from inventory or an addition to inventory is made

Answer 22

Fixed order quantity/(EOQ)/Q-model

Question 23

an inventory control model that specifies inventory is ordered at the end of a predetermined time period. The interval of time between orders is fixed and the order quantity varies (time triggered) (is limited to placing orders at the end of a predetermined time period) (counting takes place only at the review period)

Answer 23

Fixed time period model/P-model

Question 24

the amount on hand minus backordered quantities. In the case where inventory has been allocated for special purposes, this position is reduced by these allocated amounts

Answer 24

Inventory position

Question 25

shows that when the inventory position drops to point R, a reorder is placed. This order is received at the end of time period L (relating Q and R)

Answer 25

Sawtooth effect

Question 26

TC =

Answer 26

total annual cost

Question 27

D =

Answer 27

Demand (annual

Question 28

C =

Answer 28

Cost per unit

Question 29

Q =

Answer 29

quantity to be ordered (economic order quantity/EOQ/Qopt)

Question 30

S =

Answer 30

setup cost or cost of placing an order

Question 31

H =

Answer 31

annual holding and storage cost per unit of average inventory

Question 32

DC =

Answer 32

annual purchase cost of the units

Question 33

(D/Q)S =

Answer 33

annual ordering ordering cost (actual number of orders placed, D/Q, times the cost of each order, S)

Question 34

(Q/2)H =

Answer 34

the annual holding cost (the average inventory, Q/2, times the cost per unit for holding and storage, H)