Operations

Question 1

Inventory definition

Answer 1

The raw materials, work in progress and finished goods held by a firm to enable production and meet customer demand

Question 2

Advantages of low inventory levels

Answer 2

• Lower inventory holding costs
• Lower risk of inventory obsolescence
• Less capital tied up in working capital can be used elsewhere in the business
• Consistent with operating “lean”

Question 2

Advantages of high inventory levels

Answer 2

• Production fully supplied
• Potential for lower unit costs by ordering in bulk/high qualities
• Better able to handle unexpected changes in demand or need for higher output
• Less likelihood of “stock-outs”

Question 3

Why use inventory control charts?

Answer 3

The overall objective of inventory control is to maintain inventory levels to that the total costs of holding inventories is minimised

Question 4

Factors affecting when/how much inventory to re-order

Answer 4

• Lead-time from supplier
• Implications of running out (stock-outs)
• Demand of product

Question 5

Reasons to hold inventory

Answer 5

• Enable production to take place
• Satisfy customer demand