Module 4: Inventory and Warehouse Management

Question 1

Inventory Management

Answer 1

the branch of business management concerned with planning and controlling inventories

Question 2

Inventory Planning

Answer 2

the activities and techniques of determining the desired levels of items, whether raw materials, WIP, or finished products including order quantities and safety stock levels

Question 3

Inventory Control

Answer 3

the activities and techniques of maintaining the desired levels of items, whether raw materials, WIP, or finished products

Question 4

Warehousing

Answer 4

activities related to receving, storing, and shipping materials to and from production or distribution locations

Question 5

Materials Handling

Answer 5

movement and storage of goods inside the DC. this represents a capital cost and is balanced against the operating costs of the facility. Can be clasigied as receiving, in-storage transfer or handling, and shipping. Material handling may be manual, equipment assisted, or automated

Question 6

Inventory

Answer 6

those stocks or items used to support production (raw materials and WIP items), supporting activities (maintenance, repair, and operating suppliers), and customer service (finished goods and spare parts)

Question 7

Work in process (WIP)

Answer 7

a good or goods in various stages of completion throughout the plant, including all material from raw material that has been released for initial processing up to completely processed material awaiting final inspection and acceptance as finished goods inventory. Many accounting systems also include the value of semifinished stock and components in this category

Question 8

Inventory Forms at DC’s are:

Answer 8

Packaged goods awaiting orders and transportation to a distributor, retailer, or consumer; as well as parts that can be reordered by customers and consumers

Question 9

Maintenance, Repair, and Operating Suppliers (MRO)

Answer 9

items used in support of general operations and maintenance such as maintenance suppliers, spare parts, and consumables used in the manufacturing process and supporting operations

Question 10

Shrinkage

Answer 10

reductions of actual quantities of items in stock, in process, or in transit…. caused by scrap, theft, deterioration, evaporation, etc.

Question 11

Return On Assets Ration (ROA)

Answer 11

Net Income for the previous year / Total Assets

Question 12

Stockout

Answer 12

a lack of materials, components, or finished goods that are needed

Question 13

Operating Inventory

Answer 13

what is needed to satisfy forecast demand (factoring in practical issues such as Economic order quantites

Question 14

Inventory Can be classified by amount and time into:

Answer 14

Operating Inventory, Excess Inventory, Surplus Inventory, Inactive Inventory

Question 15

Inactive Inventory

Answer 15

wasted assets that will never produce revenue and place a drag on a business’s profitability

Question 16

Reasons to maintain higher inventory levels

Answer 16

Unreliable suppliers, lack of confidence in planners forecasting ability, demand characteristics that make accurate forecasting difficult, production problems (which include interruptions in production, missed production goals, porr quality work that requires correction or is rejected by customers)

Question 17

Value-added Time

Answer 17

Reflects the investment of resources that will result in sales

Question 18

Non-value-added time

Answer 18

inventory that sits and waits

Question 19

lot size

Answer 19

the amount of a particular item that is ordered from the plant or a supplier or issued as a standard quantity to the production procss

Question 20

cycle stock

Answer 20

one of the 2 main conceptual components of any item inventory, the cycle stock is the most active component. the cycle sotck delpelts gradyally as customer orders are received and is replenished cylically when supplier orders are received

Question 21

safety stock

Answer 21

a cushion of protection against uncertainty in the demand or in the replenoshment lead time

Question 22

pipeline inventory

Answer 22

inventory in the trainsporation networks and distribution system including the flow through intermediate stocking points.

Question 23

anticipation inventorys

Answer 23

additional inventory above basic pipeline stock to cover projected trends of increasing sale,s planned sales promotion programs, seasonal fluctuations, plant shutdowns, and vacations

Question 24

3 issues that challenge alighing supply and demand

Answer 24

Geographical Specialization
Decoupling Supply and Demand
Seasonal fluctuations in supply and demand

Question 25

Decoupling

Answer 25

focuses on the use of inventory as a buffer for processes in which demand may fluctuate at different stages
Creates independence btw supply and use of material

Question 26

buffer

Answer 26

a quantity of materials awaiting further processing. can refer to raw materials, semi finished stores or hold points, or a work backlog that is purposely maintained behind a work center.

Question 27

economy of scale

Answer 27

a phenomenon whereby larger columes of producti9on reduce uinit cost by distributing fixed costs over a larger quantity

Question 28

hedge inventory

Answer 28

a form of inventory buildup to buffer against some event that may not happen. involves speculation related to potential labor strikes, prince aincreases, unsettled governments, and events that could severly impair a companys stratefic initiatives. high risk & approval required

Question 29

inventory costs

Answer 29

the costs associated with ordering and holding inventory. Acquisition costs, Carrying Costs, & Stockout Costs

Question 30

Acquisition costs

Answer 30

costs associated with acquiring inventory include unit costs of materials, cost for necessary process (ordering setup, handling)

Question 31

how are acquisition costs created?

Answer 31

upstream when materials are purchased from suppliers and down stream when goods are produced to sell or provide to customers

Question 32

Unit Costs

Answer 32

total labor, material, and overhead cost for one unit of production

Question 33

Ordering cost

Answer 33

the costs that increase as the number of orders placed increases. It includes costs related to the clerical work of preparing, releasing, monitoring, and receiving orders, the physical handling of goods, inspections, and setup costs, as applicable

Question 34

handling costs

Answer 34

the cost involved in the movement of material. in some cases, the handling cost depends on the size of the inventory

Question 35

setup costs

Answer 35

costs such as scrap costs, calibration costs, downtime costs, and lost sales associated with preparing the resource for the next product. may also be referred to as changeover or turnaround costs.

Question 36

carrying costs

Answer 36

the cost of holding inventory, usually defined as a % of the dollar value of inventory per unit of time (generally one year). Depends mainly on the cost of capital invested as well as such costs of maintaining the inventory as taxes and insurance, obsolescence, spoilage, and space occupied. Costs vary from 10-15% annually depending on the industry.

Question 37

Capital Costs

Answer 37

includes both the cost of financing and opportunity costs.

Question 38

opportunity cost

Answer 38

reflect the difference in potential gains bw using capita to purchase inventory and using it for another purpose (purchasing assets, investing, retiring debt_

Question 39

Calculation for ROI

Answer 39

ROI = ((Gain-Cost)/Cost ) X 100

Question 40

stockout costs

Answer 40

may include lost sales, backorder cost, expediting, and additional manufacturing and purchasing costs

Question 41

backorder

Answer 41

an unfilled customer order or commitment. this is an immediate (or past due) demand against an item whose inventory is insufficient to satisfy demand

Question 42

expedite

Answer 42

to rush or chase production or PO’s that are needed in less than normal lead time; to take extraordinary action bc of an increase in relative priority

Question 43

valuation

Answer 43

the technique of determining worth, typically of inventory. valuation of inventories may be expressed in standard dollars, replacement dollars, current avg dollars, or last purchase price dollars

Question 44

FIFO

Answer 44

First In First Out. The accounting assumption is that the oldest inventory is the first to be used, but there is no necessary relationship with the actual physical movement of specific items.

Question 45

LIFO

Answer 45

Last in first out. The accounting assumption is that the most recently received is the first to be used or sold for costing purposes, but there is no necessary relationship with the actual physical movement of specific items.

Question 46

Average Cost

Answer 46

the current cost and quantity of inventory is combined with the cost and quantity of the most recent inventory purchase to create an average. the average is usually weighted to reflect any unique characteristics of the last order. Requires Real-time Knowledge of inventory quantity. Used when majority of organizations inventory either has high volatility in market prices or the inventory is stored in bulk rather than being discrete items

Question 47

Standard Cost

Answer 47

an accepted norm of value for the planning period is assigned to items based on the costs. Once actual costs are known, the differences are recorded as variances from standard

Question 48

Actual Cost

Answer 48

Sku value will vary by lot, which means that some portion of the sku group will have higher value than another portion. This is commonly used when acquisition costs for an item can vary greatly and suddenly.