MKT 423- Exam 3 Flashcards
What are the four main reasons companies hold inventory?
- Time
- Uncertainty
- Economy
- Discontinuity (separation in the supply chain)
What is cycle stock?
Inventory used to satisfy regular demand between orders.
What is safety stock?
Extra inventory kept to protect against variability in demand/supply.
What are the four types of inventory cost?
- Carrying cost
- ordering/setup cost
- stockout cost
- in-transit cost
What are Carrying Costs?
Storage, insurance, risk, capital.
What are Ordering/Setup Costs?
Every time you reorder.
What are Stockout Costs
Lost sales or customer dissatisfaction.
What are In-Transit Costs?
Costs while products are moving.
WIP Inventory (Work-in-Process)
Partly finished materials within any production process
What is the purpose of EOQ (Economic Order Quantity)?
To minimize the combined cost of ordering and carrying inventory.
What is Just-In-Time (JIT) inventory?
Inventory arrives only as needed for production/sales, reducing carrying costs. (low inventory)
What is MRP (Material Requirements Planning) Inventory?
Schedules raw materials
What is DRP (Distribution Requirements Planning) Inventory?
Coordinated inventory across distribution centers.
What is VMI (Vendor Managed) Inventory?
Suppliers manage your inventory.
What are the four main functions of a distribution center?
- Accumulation
- Sortation
- Allocation
- Assortment
What does Accumulation do?
Gathers product from multiple suppliers.
What does Sortation do?
Organizes product by characteristics or customer.
What does Allocation do?
Matches inventory to customer demand.
What does Assortment do?
Creates multi-SKU customer orders.
What is the difference between allocation and assortment in distribution?
Allocation matches inventory to customer orders; assortment mixes SKUs (stock keeping unit) into final shipments.
Distribution vs. Transportation
Closer facilities = cheaper shipping but more DCs (distribution centers) = more cost
Distribution vs. Inventory
More location = more safety stock
Centralized Inventory
Lower inventory cost but higher shipping cost.
Decentralized Inventory
Higher inventory cost but lower shipping cost.
What is a private distribution center?
Company-owned; high control, high fixed cost.
What is a public distribution center?
Short-term rental space; Low cost, low control.
What is a 3PL (Third-Party Logistics provider)?
A company that handles outsourced logistics like warehousing, transportation, etc.
Which mode of transportation is the most flexible and commonly used in the U.S.?
Trucking (Motor carriers)
What type of transportation is best for low-cost, heavy, long-distance freight?
Rail or water
What’s the difference between TL and LTL?
TL = Full truckload (single shipment);
LTL = Less-than-truckload (shared space with multiple shipments)
Who owns the goods and who pays the freight in FOB Origin?
Buyer owns the goods in transit and pays shipping.
Who owns the goods and who pays the freight in FOB Destination?
Seller owns the goods in transit and seller pays shipping.
What is intermodal transportation?
Using two or more transportation modes (e.g., truck + rail) in a shipment.
What is VMI (Vendor Managed Inventory)?
Suppliers manage inventory levels at the buyer’s location.
What are two main inventory positioning strategies?
Centralized vs. Decentralized
What is a stockout cost?
The cost of running out of inventory (lost sales, reputation damage, etc.)
What does sortation do in a DC?
Groups similar products for processing, storage, or shipment.
Private Fleet Transportation
High control, expensive, good for regular demand.
For-Hire Carrier Transportation
Flexible, avoids capital costs.
3PL Transportation
Handles full transportation and logistics.
