Topic 6- Inventory planning principles

Question 1

What is a major advantage of inventory?

Answer 1

Decouples process by acting as a buffer, allowing production even when there is a problem upstream

Question 2

What are disadvantages of inventory?

Answer 2

Holding costs
Risks
Opportunity costs

Question 3

What does inventory planning try to do?

Answer 3

Balance the cost and benefits

Question 4

What is Economic order quantity(EOQ)?

Answer 4

Order quantity that best balances the cost of placing orders with cost of holding inventory

Question 5

What happens in a Fixed Order Quantity management inventory?

Answer 5

Economic order quantity(Q) is ordered whenever inventory drops to reorder level, hence reorder date varies

Question 6

What happens in replenishments inventory management?

Answer 6

Reorder date is fixed and order quantity varies according to inventory level to fulfil the replenishment level

Question 7

What does pareto analysis and ABC inventory classification divide?

Answer 7

Divides inventory into categories
A- 5- 20% OF ITEMS INCURRING 50-70% of expenses
B- 30-50% of items, 20-30% of expenses
C- 40-70% of items, 10-20% of expenses