Chapter 8: Inventory Management

Question 1

Inventory

Answer 1

refers to stocks of goods and materials that are maintained for many purposes, the most common being to satisfy normal demand patterns.

Question 2

Cycle, or base, stock

Answer 2

Inventory that is needed to satisfy normal demand during the course of an order cycle

Question 3

Safety, or buffer, stock

Answer 3

Inventory that is held in addition to cycle stock to guard against uncertainty in demand or lead time.

Question 4

Pipeline, or in-transit, stock

Answer 4

Inventory that is en route between various fixed facilities in a logistics system such as a plant, warehouse, or store

Question 5

Speculative stock

Answer 5

Inventory that is held for several reasons, including seasonal demand, projected price increases, and potential shortages of a product

Question 6

Psychic stock

Answer 6

inventory carried to stimulate demand (retail)

Question 7

Carrying costs

Answer 7

costs associated with holding inventory. expressed in % and is multiplied by inventory’s value ($1000*10%=$100)

Question 8

Components of Carrying Costs

Answer 8

Obsolescence costs, inventory shrinkage, storage costs, handling costs, insurance costs, taxes, interest costs.

Question 9

Ordering Costs

Answer 9

costs associated with ordering inventory, such as order costs and setup costs. Ex. wages, credit check, entering orders into system, invoices, payment

Question 10

Stockout costs

Answer 10

estimated cost or penalty for a stockout. customer’s reaction to us being out of stock. higher stockout $$ -> hold more inventory

Question 11

Dead inventory (dead stock)

Answer 11

refers to product that has no sales during a 12-month period

Question 12

Inventory Turnover

Answer 12

Number of times that inventory is sold in a one-year period. = COGS/avg. inventory

Question 13

Vendor-managed inventory

Answer 13

manufacturer is responsible for orders. Results in reduced inventories, fewer stockouts, improved customer retention.