Chapter 13

ABC classification is based on which of the following?

value of item use relative to total value of items used

There will generally be few ___ items and many ___ items.

'A', 'C'

Which of the following z-scores will you use to be able to meet demand from inventory 99% of the time?

2.33

If demand is normally distributed with mean demand = 12 units/day, your average lead time is 3 days, and your standard deviation of demand during lead time is 7.6, what is your reorder point? Assume your desired CSL is 90%.

46

If D = 30 units/week, K = $120/order, and H = $1.5/unit/year, the EOQ will be approximately equal to (assume 52 weeks)

500

if demand is normally distributed with mean demand = 20 units/week, standard deviation of demand = 4 units/week, supply lead time is 3 weeks, and the desired CSL is 99%, what is your reorder point?

76

If your probability of a stockout is 5%, what is your cycle service level?

95%

Which of the following statements about 'A', 'B', and 'C' items is correct?

A' items are generally ordered in small quantities.

Which of the following best describes ABC analysis?

ABC analysis helps you tailor ordering practices based on relative item values.

'D' (units) represents which of the following?

Annual Demand

According to the EOQ model, what happens when your order quantity increases?

Average cycle inventory increases

The ______ measures inventory relative to average demand.

Days of inventory supply

Factors that tend to reduce the need for inventory include which of the following?

Decreasing supply uncertainty

If the annual cost of goods sold goes down by 10%, to maintain the same inventory turnover ratio, the average value of inventory will need to increase by 10%. (T/F)

FALSE

ABC classification argues that you want to use a one-size-fits-all approach to making decisions about ordering, inventory levels, or management control. (t/f)

False

Days of supply is calculated by dividing average daily use by current inventory. (t/f)

False

Forecasting is the inventory management silver bullet. (t/f)

False

The optimal order quantity occurs when your ordering costs are twice the size of your inventory carrying costs. (t/f)

False

Tracking your days of inventory supply can help you align production to market demand. However, it provides no insight to help you manage risk. (t/f)

False

______ measures the ability to fulfil an order from inventory.

Fill rate

If the average value of inventory is reduced, which of the following will go up?

Inventory Turnover

Cycle inventory is most closely associated with which of the following?

Order quantities

Which of the following is the most effective way to reduce your order quantity (Q)?

Reduce the order cost

What does SKU stand for? SPU?

Standard keeping unit, Standard product unit. example (SPU= iphone11, SKU= color, capacity, carrier)

Days of inventory supply

current inventory/ average daily usage

Which of the following should your inventory strategy accomplish?

enable or support your company's competitive strategy

The assumptions of the EOQ model are not very realistic, but the model is quite robust. (t/f)

false

Which of the following helps you improve inventory performance?

improving forecasting accuracy

Reorder point

lead time multiplied by average daily demand

Which of the following is a reason to keep inventory?

to help you respond to uncertain demand

Which of the following might be expected to be an 'A' item SKU at a university?

a $30,000 vehicle

Which of the following is a source of uncertainty in the reorder point model?

a. demand is seldom constant c. delivery lead times are not fixed

Inventory Turnover

annual cost of goods sold/average inventory

why is High inventory turnover better than low inventory turnover?

because that means a company is selling goods quickly

A CSL defines your desired probability of being able to meet demand from inventory. (t/f)

True

Inventory turnover is described as velocity measure because it measures how quickly and efficiently you turn inputs into sales. (t/f)

True

The standard deviation of demand during lead time takes both demand and lead time variability into account. (t/f)

True

In step #1 of classifying SKUs based on relative value, you multiply which two numbers together to obtain your annual use?

Unit cost and number of units used each year