Inventory

Question 1

Inventory

and decisions are about balancing

Answer 1

Stock of items including materials, orders, information used in process to satisfy customer demand

inventory costs with pressure to increase inventory

Question 2

Inventory Management policies must be….,
Less is….

Answer 2

aligned with competitive priorities -> less is not always more

Question 3

Inventory Costs (3) or pressures for low inventory

Answer 3

Little’s Law, Holding Costs, Ordering Costs

Question 4

Littles Law

Answer 4

Throughput time increases with WIP
WIP
Throughput Output Rate

Question 5

Inventory Holding Costs and includes (3)

Answer 5

Variable Cost of keeping items in inventory
1. Cost of Capital
2. Storage and Handling
3. Taxes, Insurance, Shrinkage

Question 6

Cost of Capital

Answer 6

Opportunity cost of investing in inventory relative to expected return if invested elsewhere

Question 7

Storage and Handling

Answer 7

costs associated with renting, staffing storage space, opportunity cost associated with use of space for storage

Question 8

Taxes, Insurance Shrinkage

Answer 8

cost of insuring inventory, theft, spoilage and obsolescence

Question 9

Ordering Costs

Answer 9

costs of placing an order, etc staffing or administration

Question 10

What is the difference between cost for inventory holding and ordering

Answer 10

Holding costs are per unit (variable)
Ordering costs are fixed per order regardless of size

Question 11

High Inventory Pressures:
Inventory can support_____and avoid______
Higher volume orders may optimize_______
Produce larger batch sizes may
Producing inventory increases (2)
Increase_____ and reduce less than

Answer 11

quick delivery and avoid stockouts
ordering costs from suppliers
decrease set up costs
productivity and resource utilization
Efficiency. truck load shipments

Question 12

Safety Stock and protect against (4)

Answer 12

Inventory is held to protect against uncertainty in demand, lead time, processing time, quality and supply

Question 13

Decoupling

Answer 13

inventory that accommodates different rates of production in a system

Question 14

Pipeline Inventory

Answer 14

Inventory in transit, including materials on way from suppliers (daily demand x lead time)

Question 15

anticipation inventory

Answer 15

manage predictable variation in demand

Question 16

Cycle Inventory

Answer 16

portion of total inventory that varies based on size of an order or production batch

Question 17

Total Annual Costs

Answer 17

Annual Holding Costs + Annual Ordering (Set up)

Question 18

Total Annual Costs=Q/2(H) + D/Q(S)
define each letter

Answer 18

H: Holding Costs per unit (% of items value)
S: cost per order or set up in $/batch
Q: order, lot of batch size
D: Annual demand in units per year

Question 19

Economic Order Quantity (EOQ)

Answer 19

value of quantity that gives you lowest total annual inventory costs

Question 20

EOQ= root(2DS/H)
Define variables

Answer 20

EOQ: optimal value of Q
H: Holding cost per unit (% of items value)
S: Cost per order or set up in $/batch
D: Annual Demand in units per year

Question 21

Demand Increase then EOQ

Answer 21

Increase

Question 22

Setup/order cost decrease then EOQ

Answer 22

Decrease

Question 23

Holding Cost Decrease then EOQ

Answer 23

Increase

Question 24

Independent Demand

Answer 24

Influenced by market conditions, not related to inventory decisions for other items in stock

Question 25

Inventory Review Systems (2)

Answer 25

Continuous and Periodic Review

Question 26

Continuous Review (3)

Answer 26

• Replenishment decisions made in real time based on inventory level
• System triggers order when inventory reaches set reorder point
• Time between orders varies, size is consistent

Question 27

Periodic Review (3)

Answer 27

• restock decisions made based on time between orders
• inventory review happens at fixed time intervals
• order size determined by current inventory level

Question 28

Continuous Review most important decision and inventory hits……

Answer 28

setting reorder point, inventory should hit zero when receive new order

Question 29

reorder point equation
what if you use safety stock

Answer 29

reorder point=dL
reorder = dL + safety stock

Question 30

Periodic Review most important decisions (2)

Answer 30

selecting time between orders and target inventory level

Question 31

Time between orders (P) can be set based on

Answer 31

convenience or TBOeoq

Question 32

Target Inventory Level (T) based on (3)

Answer 32

daily demand, protection interval and desired safety stock

Question 33

Protection Interval and equation

Answer 33

Time interval for which inventory must be planned when each new order is placed. Time between reviews + lead time

Question 34

Continuous Review Control System benefits (3)

Answer 34

• may reduce holding and ordering costs by tailoring reorder point
• fixed order sizes may support quantity
• requires less safety stock

Question 35

Periodic Review Control System benefits(3)

Answer 35

• supports standardization of deliveries, scheduling of inventory assessments
• combine orders for multiple products from same supplier
• does not require computerized inventory management system