Chapter 7

Question 1

What is Inventory?

Answer 1

The stock of any item or resource used in an organization.

Question 2

What four categories can inventory be broken down into?

Answer 2

Raw Materials
Work-in-Progress
Finished Goods
Maintenance Repair and Operating

Question 3

Where is inventory required in the supply chain?

Answer 3

Throughout the whole supply chain.

Question 4

What are the two types of demand?

Answer 4

Independent and Dependent

Question 5

What is Independent Demand?

Answer 5

Finished goods (they don’t depend on anything as they are already complete)

Question 6

What is the function of independent demand?

Answer 6

Buffer uncertainty in the marketplace (satisfy customer demand)

Question 7

What is Dependent Demand?

Answer 7

Work-in-progress goods

Question 8

What is the function of dependent demand?

Answer 8

Decouple dependencies in the supply chain (facilitate production)

Question 9

What are methods of inventorying?

Answer 9

Physical Inventory
Cycle Counting
RFID

Question 10

What is the least effective inventorying method?

Answer 10

Physical Inventory

Question 11

What are the characteristics of physical inventory?

Answer 11

1. Labor and time-intensive
2. Requires facility downtime
3. Takes place once a year
4. Provides annual data on inventory variances

Question 12

What are the characteristics of cycle counting?

Answer 12

1. More labor and time-efficient
2. No facility down-time
3. Takes place on a regular basis for specific items
4. Pro-actively reduces inventory variances

Question 13

What is the RFID inventory method?

Answer 13

You tag products and use a scanner to inventory.

Question 14

What are inventory-related costs?

Answer 14

Direct Costs 
Indirect Costs
Ordering/Setup Costs
Carrying (Holding) Costs
Stockout Costs

Question 15

What are Direct Costs?

Answer 15

“Costs that are directly traceable to the unit produced, such as the amount of materials and labor used to produce a unit of the finished good”.

Question 16

What are Indirect Costs?

Answer 16

“Those costs that cannot be traced directly to the unit produced and are synonymous with manufacturing overhead”.

Question 17

What are the carrying costs?

Answer 17

1. Risk Costs (Obsolescence & Shrinkage)
2. Storage Space Costs (Renting Warehouse)
3. Service Costs (Insurance costs & Taxes)
4. Capital or Finance Costs (Interest & Opportunity)

Question 18

What are Stockout Costs?

Answer 18

The cost of not having inventory on hand when demand occurs.

Question 19

What is the Two-Bin System?

Answer 19

You have a bin of products (such as nails) and once it is empty you bring it to the supplier to be refilled. (Order a whole bin)

Question 20

What is the One-Bin System?

Answer 20

When your bins inventory reaches a certain point it is restocked fully. (Order enough to fill the bin)

Question 21

In Bin inventory do you need to know exactly how much inventory you have?

Answer 21

No, it goes based off of how full the bin is not the amount in it.

Question 22

What is EOQ?

Answer 22

“The classic independent demand inventory system that computes the optimal order quantity to minimize total inventory costs.”

Question 23

What factors are used to determine EOQ?

Answer 23

Holding Costs and Ordering Costs`

Question 24

How do we reduce TAIC?

Answer 24

Sending less orders

Keeping less inventory

Question 25

What is the popular inventory model?

Answer 25

EOQ

Question 26

When does not do well?

Answer 26

When there are multiple locations

When demand is not constant

Question 27

What are the primary functions of inventory?

Answer 27

Buffer and Decouple

Question 28

What is the ABC inventory control system?

Answer 28

Determines which inventories should be counted & managed more closely than others.

Question 29

How is ABC inventory grouped?

Answer 29

-A items: highest priority, high monitoring. 20% of the total items & about 80% of the total sales revenue
–B items: 40% of total items & 15% of total sales revenue. –C items: lowest value and lowest priority. 40% of total items & 5% of total sales revenue.