Chapter 8: Inventory Management (True/False)

21. The EOQ can only be calculated with respect to the number of units to be ordered.

False

33. Lean manufacturing focuses on the elimination of waste.

True

10. The range of inventory carrying costs in the United States in the twenty-first century has been between 22 and 27 percent.

False

11. Inventory shrinkage refers to the fact that products lose value through time.

False

16. A reorder point is equal to average daily demand divided by the length of the replenishment cycle.

False

18. A fixed order quantity system is more susceptible to stockouts than is a fixed order interval system.

False

2. Different organizational functions, such as marketing and production, tend to have similar inventory management objectives.

False

24. Marginal analysis recognizes that all inventories should not be managed in the same way.

False

25. In terms of ABC analysis of inventory, no more than 25% of items should be classified as "A's."

False

28. The number of times that inventory is sold in one year is referred to as average inventory.

False

30. High inventory turnover indicates that a company is taking longer to sell its inventory.

False

32. Many grocery chains target in-stock rates of 90 percent for individual stores so that sufficient substitutes exist for a customer to purchase a substitute item rather than go to a competing store.

False

35. Efficient consumer response (ECR) and collaborative planning, forecasting, and replenishment (CPFR) are examples of lean inventory approaches.

False

37. Service parts logistics has decreased in importance in recent years.

False

4. Buffer stock is also referred to as cycle stock.

False

40. Vendor-managed inventory can only be applied to consumer, and not industrial, products.

False

9. As a general rule, companies prefer to carry less inventory as the carrying cost percentage decreases.

False

1. Inventories are stocks of goods and materials that are maintained for many purposes.

True

12. Obsolescence costs are one component of inventory carrying costs.

True

13. The trade-off that exists between carrying costs and ordering costs is that they respond in opposite ways to the number of orders or size of orders.

True

14. Not having enough items can be as bad as, and sometimes worse than, having too many items.

True

15. The higher the average cost of a stockout, the more likely a company is going to want to hold some amount of inventory (safety stock) to protect against stockouts.

True

17. One requirement of a fixed order quantity system is that the inventory must be constantly monitored.

True

19. The EOQ is the point at which carrying costs equal ordering costs.

True

20. One assumption of the basic EOQ model is a continuous, constant, and known rate of demand.

True

22. Inventory flow diagrams graphically depict the demand for, and replenishment of, inventory.

True

23. Safety stock can prevent against two problem areas: An increased rate of demand and longer-than-normal replenishment.

True

26. Dead stock (inventory) refers to product for which there is no sales during a 12-month period.

True

27. One way of dealing with dead stock (inventory) is for companies to simply throw it away.

True

29. Inventory turnover can be calculated by dividing costs of goods sold by average inventory.

True

3. Inventory carries its greatest costs after value has been added through manufacturing and processing.

True

31. Complementary products can be defined as inventories that can be used or distributed together, such as razor blades and razors.

True

34. Because of smaller, more frequent orders and closer supplier location, trucking tends to be an important mode of transportation in the just-in-time approach.

True

36. A confluence of events, such as increasing global sourcing, suggests that organizations should carefully consider the potential trade-offs before adopting a lean inventory philosophy.

True

38. One logistical challenge with service parts logistics is that it can be extremely difficult to forecast the demand for the necessary parts.

True

39. In vendor-managed inventory, the size and timing of replenishment orders are the responsibility of the manufacturer.

True

5. Safety stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.

True

6. Pipeline stock is inventory that is en route between various fixed facilities in a logistics system.

True

7. Psychic stock is associated with retail stores.

True

8. Inventory tends to be one of the largest assets (in terms of dollar value) on a company's balance sheet.

True