Operations Management Ch 12

What type of demand needs to be forecast?

Independent

The optimal replenishment level without any safety stock is computed by M = d(T + L), where d = ____ and L = _____.

average demand per time period; lead time

In the context of a fixed-order-quantity system, stock outs occur whenever the lead-time demand:

exceeds the reorder point.

What is the focus of ABC inventory analysis?

ABC inventory analysis focuses on large dollar value inventory items.

Which of the following statements is true of backorders?

Backorders result in additional costs.

The buyer for a department store orders sweaters about 6 months before the winter season. The store plans to hold a March clearance sale to sell any surplus goods by February 29. Each piece costs $100 per pair and sells for $120 per pair. At the sale price of $60 per pair, it is expected that any remaining stock can be sold during the March sale. Assume that a uniform probability distribution ranging from 250 to 450 items describes the demand. The expected demand is 300. In the context of the single period inventory system, the optimal order

P(demand ≤ Q*) = 1/3.

_____ applies to inventory situations in which one order is placed for a good in anticipation of a future selling season where demand is uncertain.

The single-period inventory model

______ involves planning, coordinating, and controlling the acquisition, storage, handling, movement, distribution, and possible sale of raw materials, component parts and subassemblies, supplies and tools, replacement parts, and other assets that are needed to _____.

inventory management; meet customer wants and needs

____ is the time between placement of an order and its receipt. One of the factors that affects it is _____.

lead time; inventory management

Net Steels is a steel manufacturing company. It orders 180 metric tons of raw material per order. It was observed that the company often faces stockout. To tackle this issue, the company incorporated a fixed-quantity system (FQS) and collected the following data. Using the data, Net Steels determined that the economic order quantity (EOQ) should be 235 metric tons. In this scenario, the annual amount that Net Steels can save by ordering as per the EOQ instead of its conventional order is:

more than $55,000 but less than or equal to $65,000.

Kelly is the owner of an aquarium store that operates 45 weeks per year. Aquinin, a high margin and profitable pump, is one of her best sellers, but it goes out of stock frequently. She decides to use a fixed-quantity system (FQS) and collects the following data about the pump's sales. Demand 100 units per week Order Cost $30 per order Item Cost $50 per box per year Inventory-Holding Cost 20 percent per year Lead Time 4 weeks Standard Deviation in Weekly Demand 7 Service Level 95 percent Using the given data, it can be concluded that the economic order quantity (EOQ) of the Aquinin pumps is:

more than 160 but less than 170 units.

Vision Toys uses a fixed-quantity system to manage its inventories. The inventory includes plastic and LED bulbs. It was observed that the company often faces stock out of plastic. The average weekly demand for plastic is 100 pounds, and historical data show that the standard deviation of weekly demand is about 7. The lead time from the plastic supplier is 2 weeks. If the company's acceptable service level is 95 percent and the number of standard deviations necessary to achieve the acceptable service level is 1.645, the reorder point for plastic with safety stock is:

more than 175 pounds but less than or equal to 225 pounds.

Using the data regarding the inventory management of a stock-keeping unit shown in the table, it can be concluded that the economic time interval for establishing an optimal policy for a fixed-period system (FPS) under the model assumptions is:

more than 6 weeks but less than or equal to 9 weeks.

Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be concluded that the optimal replenishment level with safety stock for a fixed-period system (FPS) under the model assumptions is: Demand 1,000 units per week Order Cost $50 per order Inventory-Holding Cost $0.2 per unit per year Lead Time 3 weeks Standard Deviation for Weekly Demand 7 Acceptable Service Level 95 percent Standard Deviations to Achieve the Acceptable Service Level 1.645

more than 7,500 but less than 8,500 units.

In the context of managing inventories in global supply chains, _____ can increase inventory accuracy to better than 98 percent—much higher than the current industry average of 65 percent.

radio-frequency identification chips

Stable demand is usually called:

static demand.

In the context of fixed-quantity systems, _____ is defined as the on-hand quantity (OH) plus any orders placed but which have not arrived minus any backorders (BO).

inventory position

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $17 in material and labor and sells for $26. After Valentine's Day, Suzie reduces the price to $11.00 and sells any remaining boxes. Suppose that demand is normally distributed with a mean of 60 and a standard deviation of 10. Determine the optimal number of boxes to make. Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answer to two decimal places.

62.53

Crew Soccer Shoes Company is considering a change in its current inventory control system for soccer shoes. The information regarding the shoes is as follows: Average demand = 290 pairs/week Lead time = 4 weeks Order cost = $60/order Unit cost = $18.00 Carrying charge rate = 0.21 Desired service level = 90 percent Standard deviation of weekly demand = 48 Number of weeks per year= 52 The company decides to use a fixed-order-quantity system. What is the economic order quantity? What should be the reorder point to have a 90 percent service level? Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answers to the nearest whole number.

692, 1,283

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $15 in material and labor and sells for $25. After Valentine's Day, Suzie reduces the price to $10.00 and sells any remaining boxes. Suppose that demand is normally distributed with a mean of 75 and a standard deviation of 6. Determine the optimal number of boxes to make. Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answer to two decimal places.

77.58

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $14 in material and labor and sells for $25. After Valentine's Day, Suzie reduces the price to $12.00 and sells any remaining boxes. Suppose that demand is normally distributed with a mean of 70 and a standard deviation of 9. Determine the optimal number of boxes to make. Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answer to two decimal places.

79.18

MamaMia's Pizza purchases its pizza delivery boxes from a printing supplier. MamaMia's delivers on average 200 pizzas each month (assume deterministic demand). Boxes cost 60 cents each, and each order costs $14.50 to process. Because of limited storage space, the manager wants to charge inventory holding at 18 percent of the cost. The lead time is 7 days, and the restaurant is open 360 days per year, assuming 30 days per month. Determine the economic order quantity.

803

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $13 in material and labor and sells for $28. After Valentine's Day, Suzie reduces the price to $9.00 and sells any remaining boxes. Historically, she has sold between 50 and 100 boxes. Determine the optimal number of boxes to make. Do not round intermediate calculations. Round your answer to the nearest whole number.

89

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $14 in material and labor and sells for $28. After Valentine's Day, Suzie reduces the price to $11.00 and sells any remaining boxes. Historically, she has sold between 60 and 100 boxes. Determine the optimal number of boxes to make. Do not round intermediate calculations. Round your answer to the nearest whole number.

93

Which statement is true of a fixed-period system (FPS)?

A fixed-period system orders sufficient stock at the time of review to bring the inventory position up to the replenishment level (M).

Single-period inventory models are used in situations involving:

perishable items that cannot be carried in inventory.

Suzie's Sweetshop makes special boxes of Valentine's Day chocolates. Each costs $16 in material and labor and sells for $30. After Valentine's Day, Suzie reduces the price to $15.00 and sells any remaining boxes. Historically, she has sold between 55 and 115 boxes. Determine the optimal number of boxes to make. Do not round intermediate calculations. Round your answer to the nearest whole number.

111

Which statement is true of the independent demand for a stock-keeping unit (SKU)?

A stock-keeping unit needs to be forecasted.

_____ cost is the price paid for purchased goods or the internal cost of producing them.

Unit

Krishnamurthy Clothiers is considering a change of their current inventory control system for neckties. The information regarding the neckties is: Demand = 1000 neckties/week; Lead time = 3 weeks; Order cost = $10/order; Holding cost = $5.00/pair/yr; Cycle service level = 95%; Standard deviation of weekly demand = 48; and Number of weeks per year = 52. Which two values would you need to use to calculate the relative frequency?

Units Sold and Number of Days

In the context of inventory costs, _____ costs are incurred as a result of the work involved in configuring tools, equipment, and machines within a factory to produce an item.

setup

In the context of inventory costs, _____ costs can reflect backorders or service interruptions for external customers.

stock out

In the context of inventory management, a(n) _____ is a single item or asset stored at a particular location.

stock-keeping unit

What is the business's inventory position if it has 50 units on hand, 25 units as scheduled receipts and a backorder of 5 units?

70

In the context of ABC inventory analysis, which of the following statements is true of class C items?

Class C items can be managed using automated computer systems.

_____ inventory is an additional amount of inventory that is kept over and above the average amount required to meet demand.

Safety stock

What is an example of a cost that is NOT an inventory holding cost?

Shipping

Average cycle inventory can be calculated as follows: = (Q + 0) / 2. In this formula, Q represents _____ and 0 represents _____.

maximum inventory; minimum inventory

In marginal economic analysis, the cost per item of overestimating demand is also called the ____ cost, and the cost per item of underestimating demand is also called the _____ cost.

salvage; shortage

Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be concluded that the optimal replenishment level without any safety stock for a fixed-period system (FPS) under the model assumptions is more than _____ but less than or equal to _____ units.

600; 800

When calculating the optimal order quantity, when should you adjust the order quantity upward to the nearest order quantity that will allow the product to be purchased at the assumed price?

For Q*s that are too small to qualify for the assumed discount price.

_____ is the desired probability of not having a stockout during a lead-time period.

A service level

In the context of ABC inventory analysis, which statement is true of class A items?

Class A items require close control by operations managers.

_____ inventory is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale.

Cycle

_____ are the expenses associated with carrying inventory.

Inventory holding

To incorporate quantity discounts in the basic EOQ model requires us to include the _____ in the total cost equation.

purchase cost of the item.

Inventory position is defined as the on-hand quantity, plus _____, minus any _____.

reorders; incomplete shipments

Using the data regarding the inventory management of a stock-keeping unit shown in the table, it can be concluded that the optimal replenishment level with safety stock for a fixed-period system (FPS) under the model assumptions is more than _____ but less than _____ units.

1,350; 1,550

All of the following is false about fixed-period inventory systems, except:

M is chosen to include the demand during the view period and lead time, plus any safety stock

Q* can be found using the Excel function _____.

NORM.INV

Brenda is the owner of a spa store that operates 50 weeks per year. Spair Shampoo is a high margin stock-keeping unit (SKU), but the product goes out of stock frequently. She decides to use a fixed-quantity system (FQS) and orders boxes of Spair Shampoo containing 10 bottles per box from a vendor 160 miles away. She collects the data shown with respect to the sales of Spair Shampoo. Using the given data, it can be concluded that the economic order quantity (EOQ) of the Spair Shampoo boxes is ________ boxes.

more than 55

Setup costs depend on the number of:

orders placed.

In the context of the single-period inventory model, the cost per item of overestimating demand is known as _____ cost.

salvage

The demand for bread in Ahoma City ranges from 100 to 120 tons per day, every day of the year. The demand is easily satisfied on a daily basis. This demand for bread can be categorized as:

static demand.

In the context of inventory costs, _____ costs can reflect lost sales for external customers or costs associated with interruptions to assembly lines for internal customers.

stock out

In the context of managing inventories in supply chains, _____ is the time between placement of an order and its receipt.

the lead time

What amount of inventory is on hand if the company has an inventory position of 80 units and there are scheduled receipts of 20 units and a backorder of 10 units?

90

What typically affects lead times?

Transportation carriers

_____ consists of partially finished products in various stages of completion that are awaiting further processing. _____ is completed products ready for distribution or sale to customers.

WIP inventory; finished-goods inventory

_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing.

Work-in-process

In the context of the key assumptions that underlie the economic order quantity (EOQ) model, the two types of costs relevant to the EOQ model are:

order costs and inventory-holding costs.

Jasper Tennis Rackets is considering a change of their current inventory control system for tennis rackets. The information regarding the rackets is: Demand = 100 pairs/week; Lead time = 3 weeks; Order cost = $35/order; Holding cost = $2.00/pair/yr; Cycle service level = 95%; Standard deviation of weekly demand = 50; and Number of weeks per year = 52. The company decides to use a fixed order quantity system. Which of the following would be the approximate reorder point?

420

Crew Soccer Shoes Company is considering a change in its current inventory control system for soccer shoes. The information regarding the shoes is as follows: Average demand = 220 pairs/week Lead time = 4 weeks Order cost = $60/order Unit cost = $27.50 Carrying charge rate = 0.23 Desired service level = 90 percent Standard deviation of weekly demand = 47 Number of weeks per year= 52 The company decides to use a fixed-order-quantity system. What is the economic order quantity? What should be the reorder point to have a 90 percent service level? Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answers to the nearest whole number.

466, 1,000

Crew Soccer Shoes Company is considering a change in its current inventory control system for soccer shoes. The information regarding the shoes is as follows: Average demand = 330 pairs/week Lead time = 3 weeks Order cost = $70/order Unit cost = $29.50 Carrying charge rate = 0.30 Desired service level = 85 percent Standard deviation of weekly demand = 30 Number of weeks per year= 52 The company decides to use a fixed-order-quantity system. What is the economic order quantity? What should be the reorder point to have an 85 percent service level? Use Appendix A to determine z-value. Round z-value to two decimal places. Do not round any other intermediate calculations. Round your answers to the nearest whole number.

521, 1,044

In the context of managing fixed-quantity inventory systems, if the on-hand quantity is 700 units, the number of scheduled receipts is 150 units, and the number of backorders is 100 units, the inventory position (IP) would be _____ units.

750

_____ is the affirmative selection and acquisition of products and services that most effectively minimize negative environmental impacts over their life cycle of manufacturing, transportation, use, and recycling or disposal.

Green purchasing

_____ are incurred as a result of the work involved in placing orders with suppliers or configuring tools, equipment, and machines within a factory to produce an item.

Order costs

Jasper Tennis Rackets is considering a change of their current inventory control system for tennis rackets. The information regarding the rackets is: Demand = 100 pairs/week; Lead time = 3 weeks; Order cost = $35/order; Holding cost = $2.00/pair/yr; Cycle service level = 95%; Standard deviation of weekly demand = 50; and Number of weeks per year = 52. In this system, at the beginning of the current week, the materials manager checked the inventory level of shoes and found 300 pairs. There were no scheduled receipts and no back orders. What should he do?

Place an order.

Krishnamurthy Clothiers is considering a change of their current inventory control system for neckties. The information regarding the neckties is: Demand = 1000 neckties/week; Lead time = 3 weeks; Order cost = $10/order; Holding cost = $5.00/pair/yr; Cycle service level = 95%; Standard deviation of weekly demand = 48; and Number of weeks per year = 52. In this system, at the beginning of the current week, the materials manager checked the inventory level of shoes and found 300 neckties. There were no scheduled receipts and no back orders. What should he do?

Place an order.

_____ are one of the inputs to manufacturing and service-delivery processes.

Subassemblies

Belwick's Pizza uses dough, cheese, tomatoes, and corns to make its standard vegetarian pizzas. In this scenario, which of the following statements is true of the demand characteristics of pizzas and their ingredients?

The demand for pizzas is an independent demand, whereas the demand for cheese is a dependent demand.

In the context of ABC inventory analysis, which of the following statements is true of class A items?

They account for a larger dollar value than class C items.

The Welsh Corporation uses 13 key components in one of its manufacturing plants. The data are provided in the table below. Consider the ABC classification cutoffs provided in the table as shown. What classification is the last part in the A category?

WC713

_____: is an example of a case in which it may be desirable— from an economic point of view—to plan for and allow shortages?

When the value per unit of the inventory is very high, and hence the inventory-holding cost is high

In an inventory system, if inventory on hand is not sufficient to satisfy all the demand, any unsatisfied demand will result in a(n) _____, for which we compute a(n) ____.

backorder; shortage cost

The demand for trains between Marshdell and Deepbarrow varies throughout the year. The demand reaches its peak in summer and drops during winter. This demand for trains can be categorized as _____ demand.

dynamic

____ demand varies over time. _____ demand remains stable.

dynamic; static

Based on the constant demand assumption in the economic order quantity (EOQ) model, the average cycle inventory is:

half of the order quantity.

All of the following is true about the purchasing function, except:

in the past, purchasing focused on global sourcing and total system cost, rather than low-price acquisition

A single-period inventory problem can be solved using a technique called _____ analysis.

marginal economic

Using the data regarding the inventory management of a stock-keeping unit shown in the following table, it can be concluded that the optimal replenishment level without any safety stock for a fixed-period system (FPS) under the model assumptions is: Demand 600 units per week Order Cost $20 per order Inventory-Holding Cost $0.4 per unit per year Lead Time 2 weeks Economic Time Interval 3 weeks

more than 2,600 but less than or equal to 3,000 units.

Deepbarrow Inc., a construction company, uses ABC analysis to define its inventory value. The inventory contains wood, concrete, adhesive, and steel. If concrete accounts for 50 percent of the items and 5 percent of the total dollar value; steel accounts for 10 percent of the items and 60 percent of the total dollar value; wood accounts for 25 percent of the items and 18 percent of the total dollar value; and adhesive accounts for 15 percent of the items and 17 percent of the total dollar value, _____ can be classified as a class A item.

steel

Lead time is defined as:

the time between when the order is placed and when it is received.

ABC Inventory analysis sorts inventory based on:

total dollar value usage per year.

Total dollar usage or value is computed by multiply item usage (______) times the item's dollar value (_____).

volume; unit cost

CraftWare Inc., a furniture manufacturer, uses ABC analysis to define its inventory value. The inventory contains wood, cast iron, adhesive, and carbon fiber. If wood accounts for 50 percent of the items and 5 percent of the total dollar value; carbon fiber accounts for 10 percent of the items and 60 percent of the total dollar value; cast iron accounts for 25 percent of the items and 18 percent of the total dollar value; and adhesive accounts for 15 percent of the items and 17 percent of the total dollar value, _____ can be classified as a class C item.

wood