MOB Inventory Management

Question 1

What is Inventory Management?

Answer 1

Inventory Management is the organization and controlling of ordering, storage and use of the components the company will utilize when making the items it sells.

Question 2

Why is Inventory Management important?

Answer 2

-Reduced Cost Price ~ The firm benefits from bulk buying and low transportation costs.
-Flexibility ~ Stock is available so firms can respond better to demand shocks.
-Holding Stock ~ This ensures that the firm has enough stock to start production.
-Safeguarding Stock~ Stock is safeguarded in case there are unforeseen circumstances with the suppliers.

Question 3

What are some consequences of not holding enough stock?

Answer 3

1. Production halts resulting in a loss of sales revenue.
2. Dissatisfied customers
3. Bad reputation

Question 4

What are the consequences of holding too much stock?

Answer 4

1. Wastage due to spoilage
2. Increased storage costs
3. Stock becomes outdated

Question 5

What does the term Maximum Stock refer to?

Answer 5

Maximum stock refers to the maximum amount of stock a business can hold based on its objectives and storage space.

Question 6

What does the term Reorder Level refer to?

Answer 6

Reorder level refers to the point at which a new order will be placed to prevent the firm from running out of stock before the new order arrives

Question 7

What does the term Minimum Stock refer to?

Answer 7

Minimum stock refers to the lowest amount of stock the firm is willing to hold at any given time, to prevent ‘downtime’ if there is a holdup in deliveries.

Question 8

What does the term Reorder Quantity refer to?

Answer 8

Reorder quantity refers to the quantity that is ordered once the stock reaches the reorder level, which is the difference between the maximum and the minimum stock.

Question 9

What does the term Lead time refer to?

Answer 9

Lead time refers to the amount of time between when the order was first taken and when it arrives at the company.

Question 10

What are the Inventory Management techniques?

Answer 10

Economic Order Quantity and Just-in-Time

Question 11

What is Economic Order Quantity?

Answer 11

EOQ is the specific time and quantity a firm will order so it is not over or under stocked.

Question 12

What is the formula for EOQ?

Answer 12

2xDxS/H square rooted.

Question 13

What is the Just-in-Time technique?

Answer 13

JIT is a management strategy that aligns raw-material suppliers directly with production schedules. Used to improve efficiency and reduce waste by delivering goods as they are needed.

Question 14

What does a business need to use the JIT technique?

Answer 14

1. Standardization
2. High quality raw materials
3. Responsibility of workers
4. Vendor Certification

Question 15

What are the benefits of using JIT?

Answer 15

1. Reduces wastage and defects, improving customer satisfaction
2. Holding costs drastically reduce
3. Quality control by stakeholders
4. Fewer funds tied up in stock

Question 16

What are the drawbacks of using JIT?

Answer 16

1. Reduced flexibility
2. Breakdowns in machines are detrimental
3. Less likely to benefit from economies of scale
4. Depending on suppliers to maintain quality is risky