CPIM Part 1, Module 5 - Inventory management

Question 1

What is aggregate inventory management?

Answer 1

Aggregate inventory management studies how inventory flows through production, how it is used to balance supply with demand and the functions that it is used to perform

Question 2

What is distribution inventory?

Answer 2

Inventory, usually spare parts and finished goods, located in the distribution system

Question 3

What is fluctuation inventory?

Answer 3

Inventory that is carried as a cushion to protect against forecast error

Question 4

What is anticipation inventory?

Answer 4

Additional inventory above basic pipeline stock to cover projected trends of increasing sales, planned promotions, seasonal fluctuations, plant shutdowns and vacation

Question 5

What is transportation inventory?

Answer 5

Inventory that is in transit between locations

Question 6

What is in transit inventory?

Answer 6

Inventory that is in transit between manufacturing and stocking locations

Question 7

What is pipeline stock?

Answer 7

Inventory in the transportation network and the distribution system, including the flow through intermediate stocking points

Question 8

what is In-transit inventory?

Answer 8

Material moving between two or more locations, usually seperated geographically

Question 9

What is generally accepted accounting principles (GAAP)?

Answer 9

Accounting practices that conform to conventions, rules and procedures that are generally accepted by the accounting profession

Question 10

What are the three methods of accounting for the value of inventory?

Answer 10

• First- in First- out
• Last-in Last-out
• Average cost

Question 11

What is job costing?

Answer 11

A cost accounting system in which costs are assigned to specific jobs

Question 12

Decisions on how much safety stock to carry is related to four factors, which are these?

Answer 12

• Demand variability during lead time
• Targeted customer service level
• Order frequency
• Duration of the lead time

Question 13

What is on-time schedule performance, and in what type of manufacturing environment is it applicable?

Answer 13

A measure of meeting the customers orginially negotiated delivery request date. In engineer and make to order environments

Question 14

What is wall-to-wall inventory?

Answer 14

An inventory management technique in which material enters a plant and is processed through the plant into finished goods without ever having entered a formal stock area

Question 15

What is a benefit of safety lead time over safety stock for items that are only sporadically in demand?

Answer 15

Safety lead time reduces uncertainty without resulting in more inventory that may not sell for some time

Question 16

What are item costs?

Answer 16

The purchase price plus other direct costs required to get the units to where they need to be. Such as transportation, customs and insurance

Question 17

What three things are considered part of carrying costs?

Answer 17

• Capital costs
• Storage costs
• Risk costs

Question 18

What is ordering costs?

Answer 18

The costs that increase as the number of orders placed increases. Includes costs for clerical work of preparing, releasing, monitoring and receiving orders, the physical handling of goods, inspections, and setup costs if applicable

Question 19

What are production control costs?

Answer 19

The cost of issuing, closing, scheduling, loading, dispatching, moving and expediting open orders

Question 20

What is distribution requirements planning?

Answer 20

The function of determining the need to replenish inventory at branch warehouses. A time-phased order point approach is used where the planned orders at the branch warehouse are exploded via MRP logic to become gross requirements of the supply source

Question 21

What is time-phased order point (TPOP)?

Answer 21

MRP-like time planning logic technique for independent demand items, where gross requirements come from a forecast, not via explosion

Question 22

What is the main objective of independent demand ordering systems?

Answer 22

To minimize the total cost of stockout cost plus carrying cost

Question 23

What are three methods that can be used to determine when the order point is reached?

Answer 23

• Perpetual inventory
• Two-bin inventory
• Kanban

Question 24

What is a fixed reorder cycle inventory model?

Answer 24

A form of independent demand management model in which an order is placed every n time units.

Question 25

What is periodic replenishment?

Answer 25

A method of aggregating requirements to place deliveries of varying quantities at evently spread time intervals rather than variably spaced deliveries of equal quantities

Question 26

What is point of sale (POS)?

Answer 26

The relief of inventory and computation of sales data at the time and place of sale, generally through the use of bar coding or magnetic media and equipment

Question 27

What is a downside of fixed order quantity?

Answer 27

It increases aggregate inventory levels, and it can result in high inventories of items that are infrequently in demand

Question 28

What is period order quantity? And for which items is this used?

Answer 28

A lot-sizing technique under which the lot size is equal to the net requirements for a given number of periods. Used for C items.

Question 29

What is economic order quantity (EOQ)?

Answer 29

A type of order quantity model that determines the amount of an end item to be purchased or manufactured at one time. The intent is to minimize the combined costs of aquiring and carrying inventory

Question 30

EOQ makes certain simplifying assumptions that, if true or close to being true, mean that the order quantity will be the lowest total cost or very close to it. What are these four assumptions?

Answer 30

• Demand is known and relatively stable
• Items are purchased or made in batched or lots
• Ordering costs and carrying costs are known and the curves are stable
• Replacement occurs all the time

Question 31

What is a sawtooth diagram?

Answer 31

A quantity-versus-time graphic representation of the order point / order quantity inventory system showing inventory being received and then used up and reordered

Question 32

What is free on board (FOB)?

Answer 32

The terms of sale that identify where title passes to the buyer

Question 33

What is inventory control?

Answer 33

The activities and techniques of maintaining the desired level of items

Question 34

What is lot control?

Answer 34

A set of procedures used to maintain lot integrity from raw materials through manufacturing to the consumer

Question 35

Two aggregate level decisions related to inventory control need to be determined before two other item level controls can be applied. What are these two?

Answer 35

• The importance of the inventory item to the organization
• The level of control that is necessary

Question 36

What is green reverse logistics?

Answer 36

The responsibility of the supplier to dispose of packaging materials or environmentally sensitive materials such as heavy metals

Question 37

What is the objective of distribution inventory planning systems?

Answer 37

Providing the targeted level of customer service at the lowest cost and with the smoothest interaction between supply chain partners

Question 38

What are the two major controllable costs for distribution inventory planning?

Answer 38

• Material handling
• Inventory turnover

Question 39

What are the four basic types of shipping costs?

Answer 39

• Line haul costs
• Pickup and delivery costs
• Terminal handling charges
• Billing and collecting costs

Question 40

What is a distribution warehouse?

Answer 40

A facility where goods are received in large-volume unifrom lots, stored briefly, and then broken down into smaller orders of different items required by the customer

Question 41

What is unitization?

Answer 41

In warehousing, the consolidation of several units into larger units for fewer handlings

Question 42

What is a unit load?

Answer 42

Pallet, container etc…