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SCMT 364 > SCMT Exam 2 - FLASHCARDS - Chapter 20 > Flashcards

SCMT Exam 2 - FLASHCARDS - Chapter 20

1
Q

What is inventory?

A

the stock of any item or resource used in an organization, firm, or company

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2
Q

What can inventory be visualized as?

A

Can be visualized as stacks of money sitting on
shelves, and in trucks/boats/planes while in transit.

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3
Q

What is an inventory system?

A

the set of policies and controls that monitor levels of inventory

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4
Q

What is inventory specific to manufacturing department?

A

Raw materials, component parts, work in process, finished products

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5
Q

What are the purposes of inventory?

A
  1. Maintain independence of operations: trying to optimize
    the number of setups
  2. Meet variation in product demand: variation is managed
    with buffer or safety stock
  3. Flexibility in scheduling: outputs
  4. Safeguard for variation in delivery times: inputs
  5. Economies of buying: take advantage of economic order size
    or speculative buying
  6. Domain‐specific reasons: geographic specialization, in‐
    transit, etc…
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6
Q

What is meeting variations in product demand?

A

– Typically, it is impossible to know exact future demand.
– If demand is higher than inventory, customers cannot
make the purchase.

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7
Q

What is flexibility in scheduling?

A

• Customers may be interested in products only at
certain time of year, but production runs all year.
• Some products can only be produced at certain times
of year, but are demanded all year long (agriculture).

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8
Q

What is safeguarding for variation in delivery times?

A

– Uncertainty concerning timing of next replenishment
– Strikes, weather, or customs inspections could delay
shipments
– Lost orders and wrong orders must be re‐shipped. You need buffer or safety stock.

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9
Q

What is the inventory purpose of enabling economies of buying?

A

Optimal order buying and speculative buying

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10
Q

What is speculative buying?

A

Buy large amounts when prices are low in anticipation of
price increases (jet fuel, heating oil, silicon,…)

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11
Q

What is optimal order buying?

A

– Economies of Scale at the supplier lead to a decreasing
price per unit as purchase volume increases.
– Economies of Scale lead to lower unit transportation costs
as shipment size increases

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12
Q

What is domain specific reasons?

A

Geographic specialization, where supply and demand locations vary

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13
Q

What are holding costs?

A

Costs for storage, handling, insurance, and so on

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14
Q

What are examples of holding inventory costs?

A

– Opportunity cost of capital
– Depreciation
– Storage and warehouse management
– Taxes and insurance
– Obsolescence, spoilage, & shrinkage
– Material handling and tracking

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15
Q

What inventory costs are also called carrying costs?

A

Holding costs

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16
Q

What are set up (production change) costs?

A

Costs for arranging specific equipment setups, and so on

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17
Q

What are examples of set up (production change) costs?

A

– Set‐up or change‐over between items
– Arranging specific equipment or materials
– Cleaning or moving out previous material

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18
Q

What are ordering costs?

A

– Managerial and clerical costs to placing, preparing, and
receiving orders
– Maintaining IT systems with appropriate reports and
billing details
– These overhead costs can make small orders impractical
and even unprofitable!

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19
Q

What are stockout or shortage costs?

A

Big worry is lost sales or lost customer loyalty.
– Expediting/backorder costs
– Schedule disruptions for downstream partners

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20
Q

What are applications for the single period model?

A

Overbooking of airline flights, hotel rooms, etc.

Ordering of clothing, fashion items, perishable items, etc.

One‐time order for events – e.g., t‐shirts for a concert

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21
Q

This model is used when we are making a one-time purchase of an item?

A

Single period model

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22
Q

What is the Multi‐period Fixed‐Order Quantity model?

A

Used when we want to maintain an item “in‐stock,” and when we restock, a certain number of units must be ordered

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23
Q

What is the Multi‐period Fixed–Time Period model?

A

Item is ordered ordered at certain certain intervals intervals of time

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24
Q

What is another name for the single period model?

A

Newsvender problem

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25
Q

_____ is the stock of any item or resource used in an organization?

A

inventory

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26
Q

In ______, inventory is classified as in-transit, meaning that it is being moved in the system, and warehouse, which is inventory in a warehouse or distribution center.

A

Distribution

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27
Q

The basic purpose of inventory analysis, whether in manufacturing, distribution, retail, or services, is to specify which of the following?

A

When items should be ordered and how large the order should be

28
Q

High holding costs tend to favor what?

A

Low inventory levels and frequent replinishment

29
Q

If there were no costs or loss of time in changing from one product to another, what would the impact be?

A

If there were no costs or loss of time in changing from one product to another, many small lots would be produced. This would reduce inventory levels, with a resulting savings in cost

30
Q

The set of policies and controls that monitor levels of inventory and determine what levels should be maintained, when stock should be replenished, and how large orders should be is called a ______ system.

A

Inventory

31
Q

What are inventory ordering costs?

A

Costs associated with maintaining the tracking system

Counting items

Calculating order quantities

32
Q

The managerial and clerical costs to prepare purchase or production orders are called

A

Ordering costs

33
Q

What are setup costs also known as?

A

Production change costs

34
Q

When a customer cancels an order because of item backlogs, that lost revenue is a(n) ______ cost.

A

Shortage or stockout

35
Q

As it relates to inventory, a buyer’s time expended to prepare the purchase order for more material is considered a(n) ____ cost.

A

Ordering

36
Q

An _____ _____ system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked.

A

Inventory control

37
Q

What are examples of inventory holding costs?

A

Storage facility lease

Opportunity cost of capital

Insurance

38
Q

Southern Printing Corp. produces high-end booklets for university graduations listing all the participating students at a given university. What inventory model would Southern use to optimize the amount of booklet inventory produced for each graduation?

A

Single period

39
Q

Which order cost is frequently little more than a guess?

A

Shortage costs

40
Q

What are inventory ordering costs?

A

Counting items

Costs associated with maintaining the tracking system

Calculating order quantities

41
Q

What is an inventory control system responsible for?

A

Receiving goods

Keeping track of what has been ordered

Ordering goods

Timing the order placement

42
Q

If a company is trying to find the optimal amount of inventory to produce for a single event, it is likely to deploy which type of inventory model?

A

Single period

43
Q

Which model is also called a periodic review system or fixed-order interval system or P-model?

A

Fixed time period

44
Q

A _____ is when the order is held and filled at a later date when the inventory for the item is replenished?

A

Back order

45
Q

As it relates to inventory, a buyer’s time expended to prepare the purchase order for more material is considered a(n) ____ cost.

A

Ordering

46
Q

What is the fixed period model also known as?

A

periodic system

fixed-order period model

P-model

periodic review system

47
Q

The fixed–order quantity model is a ______ system, which requires that every time a withdrawal from inventory or an addition to inventory is made, records must be updated to reflect whether the reorder point has been reached.

A

Perpetual

48
Q

An _____ _____ system provides the organizational structure and the operating policies for maintaining and controlling goods to be stocked.

A

Inventory control

49
Q

What is an inventory control model where the amount requisitioned is fixed and the actual ordering is triggered by inventory dropping to a specified level of inventory?

A

Fixed–order quantity model (Q-model)

50
Q

What is an inventory control model that specifies inventory is ordered at the end of a predetermined time period. The interval of time between orders is fixed and the order quantity varies?

A

Fixed–time period model (P-model)

51
Q

Which model is only when a review is made for record keeping?

A

P model

52
Q

Which model is it each time a withdrawal or addition is made?

A

Q model

53
Q

What is defined as the on-hand plus on-order minus backordered quantities?

A

Inventory position

54
Q

What represents the review period for a fixed-time period model?

A

T

55
Q

Fixed–time-period models are _____ triggered

A

Time

56
Q

Acme Company carries an additional level of inventory beyond the expected demand during reorder lead times. This additional inventory is called:

A

Safety stock

57
Q

The amount of safety stock depends on the _____ desired.

A

Service level desired

58
Q

_____ _____can be defined as the amount of inventory carried in addition to the expected demand.

A

Safety stock

59
Q

Which model is more likely to have a stock out?

A

Fixed time period

60
Q

What are assumptions for the fixed order quantity model?

A

Demand for the product is constant and uniform throughout the period.
Lead time (time from ordering to receipt) is constant.
Price per unit of product is constant.
Inventory holding cost is based on average inventory.
Ordering or setup costs are constant.
All demands for the product will be satisfied.

61
Q

What is Total Annual (Acquisition) Costs (TAC)?

A

The sum of all relevant inventory costs incurred each year. Purchase costs + ordering costs + holding costs + stockout costs

62
Q

What is the price break model?

A

Reduced price when item is purchased in larger qualtities

63
Q

True or false: One of the basic purposes of inventory analysis in manufacturing and stock keeping services is to determine the level of quality to specify?

A

False. The basic purpose of inventory analysis in manufacturing and stock keeping services is to specify (1) when items should be ordered and (2) how large the order should be.

64
Q

True or false: Fixed-time-period inventory models are “event triggered”?

A

False. The basic distinction is that fixed-order-quantity models are “event triggered” and fixed- time-period models are “time triggered.”

65
Q

True or false: Safety stock is not necessary in any fixed-time-period system?

A

False. Fixed-time-period models generate order quantities that vary from period to period, depending on the usage rates. These generally require a higher level of safety stock than a fixed-order-quantity system

66
Q

In making any decision that affects inventory size, which of the following costs do not need to be considered?
A. Holding costs
B. Setup costs
C. Ordering costs
D. Fixed costs
E. Shortage costs

A

Fixed costs. In making any decision that affects inventory size, the following costs must be considered: 1. Holding (or carrying); 2. Setup (or production change); 3. Ordering; 4. Shortage.

67
Q

If annual demand is 1,000 units, the ordering cost is $500 per order, and the holding cost is $1 per unit per year, which of the following is the optimal order quantity using the fixed- order-quantity model?
A. 500
B. 1000
C. 5000
D. 50,000
E. 1,000,000

A

From Equation 20.3, Q = 1000 = Square root of ((2 x 1,000 x 500)/1).

SCMT 364 (8 decks)

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