OPS MODULE 8 Flashcards
____ is a stock or store of goods
Inventory
______ are items that are ready to be sold or used
Independent demand items
______ are vital part of business since it is necessary for operations and contributes to customer satisfaction
Inventories
A “typical” firm has roughly ___% of its current assets and as much of __% of its working capital invested in inventory
30 ; 90
T or F: The following are the types of items:
- Raw materials and purchased parts
- Work-in-process (WIP)
- Finished goods inventories or merchandise
- Tools and supplies
- Maintenance and repairs (MRO) inventory
- Goods-in-transit to warehouse or customers (pipeline inventory)
False (inventory not items)
Inventory Functions:
- To meet anticipated customer demand
- To smooth ______ requirements
- To _____ decouple
- To protect against ______
production ; decouple ; stockouts
Inventory Functions:
- To take advantage of ____ cycles
- To hedge against ____ increases
- To _____ operations
- To take advantage of quantity _____
order ; price ; permit ; discounts
Level of Customer Service
Having the right ____ available in the right ____ in the right ____ at the right time _____
goods ; quantity ; place ; time
The overall objective of inventory management is to achieve satisfactory levels of _______ while keeping ______ within reasonable bounds
- Measure of Performance
- Customer Satisfaction (no. and qty. of backorders & customer complaints)
- Inventory Turnover
customer service ; inventory costs
Effective Inventory Management required:
1. A _____ keep track of inventory
2. A reliable _____ of demand
3. Knowledge of ______ and lead time variability
4. Reasonably estimates of (state the three costs)
5. A _____ system for inventory items
-system
-forecast
-lead time
-holding, ordering, and shortage costs
-classification
____ is a physical count of items in inventory made at periodic intervals
Periodic System
______ system that keeps track of removals from inventory continuously, thus monitoring current levels of each item
Perpetual inventory system
An order is placed when inventory drops to a predetermined minimum level
_______ is two containers of inventory ; reorder when the first is empty
Two-bin system
Bar code printed on a label that has information about the item to which it is attached
Universal product code (UPC)
A technology that uses radio waves to identify objects, such as goods, in supply chains
Radio Frequency Identification Tags (RFID)
Inventory Costs:
______ ; amount to buy the inventory
Holding (carrying) cost ; cost to carry an item in inventory for a length of time, usually a _____
________ ; costs of ordering and receiving inventory
Setup costs ; the costs involved in preparing equipment for a job and _____ to ordering costs
______ ; costs resulting when demand exceeds the supply of inventory and often unrealized profit per unit
-purchase cost
-year
-ordering costs
-analogous
-shortage costs
Approach that involves classifying inventory according to some measure of importance, and allocating control efforts accordingly
A-B-C Approach
__ items ; very important
__ items ; moderately important
__ items ; least important
A
B
C
A items ; ___ to ___ percent of the number of items in inventory and about ___ to ___ percent of the annual dollar value
10 to 20
60 to 70
C items ; __ to __ percent of the number of items in inventory but only about __ to __ percent of the annual dollar value
50 to 60
10 to 15
A physical count of items in inventory
Cycle counting
Cycle counting management
How much accuracy is needed?
A items; +- __ percent
B items; +- __ percent
C items; +- __ percent
-When should cycle counting be performed?
-Who should do it?
0.2
1
5
_________ identify the optimal order quantity by minimizing the sum of annual costs that vary with order size and frequency
Three types:
-Basic economic order quantity model
-Economic production quantity model
-Quantity discount model
Economic order quantity model
T or F: The basic EOQ model is used to find a fixed order quantity that will maximize total annual inventory costs
False (minimize not maximize)
Assumptions of Basic EOQ model:
- Only ___ product is involved
- Annual demand requirements are known
- Demand is ___ throughout the year
- Lead time does not ___
- Each order is received in a single delivery
- There are no quantity ____
one
even
vary
discounts
Reorder point ; when the quantity on hand of an item drops to this amount, the item is _______
Determinants:
1. The rate of demand
2. The lead time
3. The extend of demand and/or lead time variability
4. The degree of stockout risk acceptable to management
Reordered
ROP = d x LT
what is d?
Demand rate (units per period, per day, per week)
ROP = d x LT
what is LT?
Lead time (same units as d)
Price reduction for larger orders offered to customers to induce them to buy in large quantities
Quantity discount
What is the formula for total cost?
TC = Carrying Cost + Ordering Cost + Purchasing Cost
TC = Q/2H + D/QS + PD
P = Unit Price
T or F: Adding PD changes the EOQ
False (does not change)
The _____ mode is widely used in production. In certain instances, the capacity to produce a part exceeds its usage (demand rate)
Assumptions
1. Only one item is involved
2. Annual demand requirements are known
3. Usage is constant
4. Usage occurs continually, but production occurs periodically
5. The production rate is constant
6. Lead time does not vary
7. There are no quantity discounts
batch
T or F: Demand or lead time uncertainty creates the possibility that demand will be lesser than the available supply
False (greater)
It is necessary to carry ____ to reduce the likelihood of a stockout
Safety stock
____ stock is held in excess of expected demand due to variable demand and/or lead time
Safety stock
what is the formula of ROP under uncertainty?
ROP = Expected demand during lead time + safety stock
As the amount of safety stock carried ____, the rise of stockout ____
increases ; decreases
_______ is the probability that demand will not exceed supply during lead time
Service level
If the service level = 100% then it implies a?
Stockout risk
Appropriate amount of safety stock in a given situation depends upon:
- The average _____ rate and average _____ time
- ____ and ____ variability
- The desired _____
- demand ; lead
- demand and lead time
- service level
T or F: The ROP based on a normal distribution of lead time demand
True
Orders are placed at fixed time intervals
Fixed-order-interval (FOI) model
T or F: Supplier’s policy do not encourage the use of FOI model
False (may encourage)
T or F: Individual orders from the same supplier can produce savings in shipping costa
Grouping
T or F: In using the FOI model , some circumstances do not lend themselves to continuously monitoring inventory position
True
Model for ordering of perishables and other items with limited useful lives
Single-period model
____ is the unrealized profit per unit
Shortage cost
Formula for shortage cost?
Cshortage = Cs = Revenue per unit - Cost per unit
Difference between purchase cost and salvage value of items left over at the end of each period
Excess cost
Formula for excess cost?
Cexcess = Ce = Cot per unit - Salvage value per unit
T or F: The goal of the single-role model is to identify the order quantity that will minimize the short-run excess and shortage cost
False (long-run not short-run)
Demand can be characterized by a _____ or a ____ distribution.
Continuous ; discrete
