Supply Chain Chapter 4

Types of inventory systems

ABC system BIN system Base stock level system single period inventory model

Economic Order Quantity (EOQ) Model

a quantitative decision model based on the trade off between annual inventory carrying costs and annual order costs

Service Inventory

activities carried out in advance of the customers arrival

Strategic stock

additional inventory beyond cycle and safety stock, generally used for a very specific purpose or future event or defined period of time

Types of external inventory

pipeline inventory and obsolete inventory

Pipeline inventory

inventory in transit. inventory held/owned by suppliers, or by wholesalers, distributors, retailers, and customers

Obsolete Inventoy

inventory items that have met the obsolescence criteria established by the company

Raw Materials

purchased items or extracted material that are converted via the manufacturing process into components and products

The four broad categories of inventory are raw materials, work-in-process, MRO, and finished goods A. True B. False

A. True

Three levels of internal inventory

Cycle stock, safety stock, and strategic stock

Functions of Inventory

1. to meet customer demand 2. to buffer against uncertainty in demand and/or supply 3. to decouple supply from demand 4. to decouple dependencies in the supply chain

The Economic Order Quantity (EOQ) is the optimal order size because it minimizes the annual total inventory cost. A. True B. False

A. True

The top 2 primary functions of inventory are (1) To meet customer demand, and (2)To buffer against uncertainty in demand and/or supply . A. True B. False

A. True

Inventory costs which are independent of the output quantity are called? a. Indirect Costs b. Variable Costs c. Fixed Costs d. Carrying Costs

C. Fixed Costs

A type of inventory system that issues an order whenever a withdrawal is made from inventory is known as? a. ABC System b. Bin System c. Base Stock Level System d. Single Period Inventory Model

C. base stock level system

Which of the following is NOT an example of an ordering cost for products purchased from a supplier? a. The cost of transmitting the order b. The cost of receiving the product c. The cost associated with processing the invoice d. The opportunity cost of not ordering from a least cost supplier e. The cost of handling the product

D. the opportunity cost of not ordering from a least cost supplier

The primary purpose of the basic economic order quantity model is a. To calculate the reorder point, so that replenishments take place at the proper time b. To minimize the sum of carrying cost and holding cost c. To maximize the customer service level d. To minimize the sum of ordering cost and holding cost

D. to minimize the sum of ordering cost and holding cost

Four Main categories of inventory

Raw materials, work-in-progress, finished goods, maintenance, repair, and operating supplies

Work-in-Process (WIP)

a good or goods in various stages of completion throughout the plant, spanning from raw material that has been released for initial processing up to fully processed material awaiting final inspection and acceptance as finished goods.

Safety stock

buffer stock, inventory that is above and beyond what is actually needed to meet anticipated demand

Cycle stock

inventory a company builds to satisfy its immediate demand

Maintenance, Repair, and operating (MRO)

items used in support of general operations and maintenance such as maintenance supplies, spare parts, and consumables used in the manufacturing process and supporting operations

Inventory

quantities of goods and materials that are held in stock. includes all of the raw materials and work in process items used to support production, all of the finished products needed to provide customer service and all of the other materials and supplies needed to run a business

Inventory Management

the function of planning and controlling inventories. goal is to help a company be more profitable by lowering the cost of goods sold and/or by increasing sales

Finished Goods

those items on which all manufacturing operations, including final testing, have been completed. These produces are available for sale and/or shipment to the customer