Managing Inventory

Question 1

Anticipation inventory

Answer 1

Inventory that provides for expected supply or demand

Question 2

Buffer Inventory (Safety stock), SS

Answer 2

Stock that cushions against unexpected fluctuations in supply, demand or lead times

(z) x (StDev_DLt)

ROP - EOQ

Question 3

Continuous Review Model Fixed Qty Model

Answer 3

A system where stock on hand is continuously monitored and updated once it reaches a certain threshold. Time allocated to review is not predetermined. ROP is the threshold. ROP dictates the ordering of inventory. ROP: The amount of inventory needed to cover demand during lead time

Question 4

Cycle stock Lot size inventory

Answer 4

Inventory produced in quantities that provides for expected demand; it takes advantage of cost-savings tied to quantity discounts; it is produced to allow for more economic production and purchasing.

Question 5

Days of Inventory

Answer 5

360 / inventory turnover

Question 6

Inventory turnover

Answer 6

COGS / average inventory Average inventory is valued at cost

Question 7

Decoupling inventory

Answer 7

Inventory serving as a buffer between interdependent operations; reduces the need for production to be synchronized and protects against fluctuating production rates and breakdowns. It’s also meant to reduce lead times if products are not yet ready for deployment.

Question 8

In-stock rate

Answer 8

The probability that demand can be satisfied with the available inventory during a given inventory cycle AKA, critical ratio

Question 9

Economic Order Quantity EOQ

Answer 9

The amount of inventory that should be ordered to minimize the sum of (ordering costs + inventory holding costs). This model drives the amount of inventory ordered under the continuous and periodic review models.

Question 10

Finished Goods (FG)

Answer 10

Completed goods available for sale; can include goods purchased for resale

Question 11

Goods for resale

Answer 11

Finished goods returned by the customer

Question 12

Inventory carrying cost Holding cost

Answer 12

The cost per unit for holding inventory; costs related to financing inventory; storage costs; rent, labor, utilities, taxes and insurance. As a percentage of the items in inventory (Review in reading)

Question 13

Maintenance, repair and operations inventory MRO inventory

Answer 13

Supplies required for production and facility maintenance

Question 14

Single-Period News Vendor model

Answer 14

Applies to products with limited salable lives; they cannot be carried over for sale in subsequent periods. Inventory model determining the optimal inventory level to minimize the sum of (expected Cu + expected Co)

Question 15

Obsolescence costs

Answer 15

The decrease of an item’s value over time.

Question 16

Ordering cost

Answer 16

Fixed costs tied to replacing inventory: labor and transportation costs; per order costs NOT per unit costs.

Question 17

Order up to level

Answer 17

Target amount of inventory to order in a periodic review model.

Question 18

Periodic review model Fixed interval model

Answer 18

A system where after a predetermined time period, managers will monitor and update inventory. The manager or person checking inventory has ordering discretion.

Question 19

Pipeline inventory In-transit inventory

Answer 19

Stock required for when products are processed or rendered; stock required to fill the gaps created by the movement of goods

Question 20

Raw materials RM

Answer 20

Unprocessed inputs

Question 21

Reorder Point ROP

Answer 21

The inventory threshold that triggers replenishment. (Demand rate) x (lead time) D(LT) = D x LT Demand during lead time; the amount of inventory needed to cover demand during lead time

(expected demand during lead time) + (Safety Stock)

[E(d) x E(Lt)] + SS

Question 22

Reuse inventory

Answer 22

Items collected or recovered for reutilization

Question 23

Shrinkage costs

Answer 23

The cost of items being lost or becoming unsellable

Question 24

Speculation inventory

Answer 24

Inventory accumulated in anticipation of price fluctuations

Question 25

Spare parts inventory

Answer 25

Items used for repairs or replacement

Question 26

Work in process WIP

Answer 26

Products in between the RM stage and FM stage; released for processing, value added products, and semi-finished goods.

Question 27

Stock-out Rate

Answer 27

The chance inventory won’t meet demand

1 - critical ratio