Inventory management 4.2

Question 1

Define the term “Inventory”

Answer 1

Materials and goods required to allow for the production and supply of products to the consumer.

Question 2

Define the term “Economic order quantity”

Answer 2

The optimum or least-cost quantity of stock to re-order taking into account delivery costs and stock-holding costs.

Question 3

Define the term “Buffer inventories”

Answer 3

The minimum inventory level that should be held to ensure that production could still take place should a delay in delivery occur or should production rates increase.

Question 4

Define the term “Re-order quantity”

Answer 4

The number of units ordered each time.

Question 5

Define the term “Lead time”

Answer 5

The normal time taken between ordering new stocks and their delivery.

Question 6

Define the term “Just-in-time”

Answer 6

An inventory control method aims to avoid holding inventories by requiring supplies to arrive just as they are needed in production and completed products are produced to order.

Question 7

List 3 Advantages of JIT inventory control.

Answer 7

Answers may include :
- Capital invested in inventory is reduced and the opportunity cost of inventory is holding is reduced.
- Costs of storage and inventory holding are reduced.
- Much less chance of inventories becoming outdated or obsolescent.
- The greater flexibility that the system demands leads to a quicker response time to changes in consumer demand or tastes.
- The multiskilled and adaptable staff required for JIT to work may gain from improved motivation.

Question 8

List 3 Disadvantages of JIT inventory control.

Answer 8

Answers may include :
- Any failure to receive supplies of materials or components in time caused by, for example, a strike at the supplier’s factory, transport problems or IT failure will lead to expensive production delays.
- Delivery costs will increase as frequent small deliveries are an essential feature of JIT
- Order-administration costs may rise because so many small orders need to be processed.
- There could a reduction int he bulk discounts offered by suppliers because each order is likely to be very small.
- The reputation of the business depends significantly on outside factors such as the reliability of supplying firms.