Chapter 7

Calculate the current inventory of a furniture showroom if the expected sales of chairs is 500 units per day and the days of supply is 4 days.

2000 units

Identify the supply chain method in which supply chain partners periodically share forecasts, demand plans, and resource plans to reduce uncertainty and the risks in meeting customer demand.

A collaborative planning, forecasting, and replenishment initiative

Identify the true statements about stockout costs. (Check all that apply.)

A potential stockout cost is the cost of a lost sale. Stockouts cause disruptions of materials flows in the supply chain. When stockout costs are known to exist, a company can incur significant back ordering and expediting costs. A company may never know the actual amount of stockout cost for a product.

Identify the factors that are necessary to calculate the reorder point. (Check all that apply.)

Average supplier lead time Average demand per time period

_____ _____ _____ minimizes the sum of annual inventory carrying cost and annual ordering cost.

Blank 1: Economic Blank 2: order Blank 3: quantity

_____ _____ is a fixed time period that passes between inventory reviews.

Blank 1: Order Blank 2: interval

_____ cost is the cost incurred when inventory is not available to meet demand.

Blank 1: Stockout or Shortage

_____ _____ is the period of time when an unknown amount of inventory is on hand.

Blank 1: Uncertainty Blank 2: period

Extra inventory held to guard against uncertainty of supply or demand is known as _____ stock.

Blank 1: buffer or safety

A(n) _____ is a supply of items held by a firm to meet demand.

Blank 1: inventory

In a _____-_____ _____, the vendor is responsible for managing the inventory located at a customer's facility.

Blank 1: vendor or supplier Blank 2: managed Blank 3: inventory

Match the different types of independent demand inventory systems (in the left column) with their respective descriptions (in the right column).

Continuous review model: Constant monitoring of inventory to decide when a replenishment order needs to be placed Periodic review model: Management systems built around checking and ordering inventory at some regular interval

_____ is the amount of demand that occurs while awaiting receipt of an inventory replenishment order.

Demand during lead time

Which of the following best illustrates a dependent demand inventory system?

Demand for the binding of a book at a store

A multinational firm has customer demand for its product all over the world. To meet the demand, the firm has strategically placed its manufacturing facilities closer to the customer demand zones and near transportation hubs to facilitate easy transport. Which of the following does this scenario illustrate?

Enabling geographic specialization

Identify the disadvantages of having an extremely high inventory turn rate. (Check all that apply.)

Increased purchasing, ordering, and receiving time, effort, and cost Increased cost of goods sold Lowered sales volume

Identify the different expenses that a carrying cost encompasses. (Check all that apply.)

Insurance Cost of owning and maintaining storage space Taxes Opportunity cost Costs of obsolescence, loss, and disposal Costs of materials handling, tracking, and management

Identify the categories of inventory performance metrics that address the issues of asset productivity. (Check all that apply.)

Inventory turnover Days of supply

Identify the outcomes of the bullwhip effect. (Check all that apply.)

It incites excessive expediting. It introduces uneven levels of capacity utilization. It results in increased costs. It causes increased levels of inventory.

Define cycle counting.

It is a process where each item in inventory is physically counted on a routine schedule.

Define the bullwhip effect.

It is a small disturbance generated by a customer that produces successively larger disturbances at each upstream stage in a supply chain.

Define a two-bin system.

It is a system in which the inventory of an item is stored in two different locations.

No lot size restrictions

It is possible to order a lot size equal to the economic order quantity (EOQ).

Define transit inventory.

It is the inventory of items being transported from one location to another. Need help? Review these concept resources.

Define service level.

It is the measure of how well the objective of meeting customer demand is met.

Define reorder point.

It is the minimum level of inventory that triggers the need to order more.

Define production order quantity.

It is the most economic quantity to order when units become available at the rate at which they are produced.

Define days of supply.

It is the number of days of business operations that can be supported with the inventory on hand.

Define Pareto's law.

It is the rule that a small percentage of items account for a large percentage of sales, profit, or importance to a company.

Define a total system inventory.

It is the sum of the inventory held across all of the locations in a company.

Define a single period inventory model.

It is used to determine the order size for a one-time purchase.

Identify the true statements about the single period inventory model. (Check all that apply.)

It requires estimates of an expected demand and a standard deviation. It is frequently referred to as the newsvendor problem.

A car manufacturing company stocks adequate quantities of cleaning supplies for its shop floor at any given point of time. The cleaning supplies held by the company is an example of the _____.

MRO inventory

Items that are used as maintenance, repair, and operating supplies are classified as _____.

MRO inventory

Identify the different ways that are used to measure inventory turnover. (Check all that apply.)

Net sales Average inventory @ selling price Cost of goods sold Average inventory @ cost Unit sales Average inventory in units

Identify the true statements about managing cycle stocks. (Check all that apply.)

One way to reduce total average inventory is to reduce the order quantity. Offering the lowest possible price per unit regardless of order quantity would result in smaller order quantities. The primary driver of cycle stock is the order quantity.

Identify the methods of reducing order costs that in turn reduce cycle stocks. (Check all that apply.)

Online ordering Reducing receiving costs Automated payment of invoices

Identify the formula used to calculate the total acquisition cost.

Order cost + Inventory carrying cost

_____ are the expenses incurred in placing and receiving orders from suppliers.

Order costs

_____ is the amount paid to suppliers for products that are purchased.

Product cost

No quantity discounts

Product cost is constant regardless of quantity ordered.

No variability

Product demand and replenishment lead time are known and constant.

Identify the steps used in a quantitative ABC analysis. (Check all that apply.)

Rank the items from highest to lowest percentage. Classify the items into ABC categories. Determine annual usage/sales for each item. Determine the percentage of the total usage/sales by item.

_____ specifies the amount of risk of incurring a stockout that a firm is willing to incur.

Service level policy

Identify the true statements about inventory information systems and accuracy. (Check all that apply.)

Technologies such as bar codes and electronic identification tags can help in managing inventory record. An inaccurate inventory record causes firms to hold additional safety stocks. Inventory audits are important to ensure that entry and count errors are identified and corrected.

No product interactions

The ordering of one product is not tied to the ordering of some other product.

No partial deliveries

The product is produced and delivered in a single batch.

Identify the advantages to the vendor when a vendor-managed inventory is implemented. (Check all that apply.)

The vendor gains better insights into the customer's operations. The vendor does a better job of scheduling inventory replenishment orders than the customer does. The vendor can also accommodate the needs of its own internal operations

Identify the assumptions underlying the economic order quantity (EOQ) formulation that often do not hold true in practice. (Check all that apply.)

There are no lot size restrictions. Product demand is known and constant. There are no quantity discounts.

Define raw materials and component parts.

These are the items that are bought from suppliers to use in the production of a product.

Define setup costs.

They are the administrative expenses and the expenses of rearranging a work center to produce an item.

_____ cost is the sum of all relevant inventory costs incurred each year.

Total acquisition

True or false: It is common to measure stockouts in terms of the number or percentage of inventory items for which there is no inventory on hand at the time of demand.

True

The square root rule _____.

a method of estimating the impact of changing the number of locations on the quantity of inventory held

A chef orders excess ingredients for cookies than what is required to cater to sudden increase in customer demand. This scenario is an illustration of _____.

buffering for uncertainty in supply and demand

True or false: In a firm, the demand for inventory will come only from an external customer.

false

Items that are ready for sale to customers are classified as _____.

finished goods inventory

Define a single period inventory model.

it is used to determine the order size for a one time purchase

The formula zσddlt is used to calculate the _____.

safety stock

The category of inventory performance metrics that addresses effectiveness in terms of meeting demand requirements is referred to as _____.

service level

The formula σddlt = √tbarσd^2+dbar^-2σt^2 is used to calculate the _____.

standard deviation of demand during lead time

True or false: Two-bin systems are frequently used to manage inventory of low-value but necessary items and high-volume parts.

true

Identify the formula used to calculate production order quantity in terms of D,Co, Ci, U, d, and p, where D is the annual demand, Co is the setup cost, U is the unit cost, Ci is the inventory carrying cost percentage, d is the daily rate of customer demand, and p is the daily rate of production..

√2DCo/CiU{1−dp}

Identify the formula used to calculate the economic order quantity.

√2DCo/UCi, where D is the annual demand, Co is the order cost, U is the unit cost, and Ci is the inventory carrying cost percentage