Chapter 12

demand will not exceed supply during lead time

A service level of 95% implies a 95% probability that __________.

inventory

A stock or store of goods is _______.

During the lead time for an order that has been placed

At which point in an order cycle is the risk of a stockout occurring the greatest?

increase in ROI

Because firms tend to have about 30 percent of current assets invested in inventory, a reduction in inventories can result in a significant ______.

inventory ordering policy

How much to order, and when to order, are the two basic issues in an _______.

90%

If annual demand is 10,000 units and 9,000 units of demand was filled directly from inventory, with shortages totaling 1,000 units, the annual fill rate is ______.

They function identically

If both the demand rate and lead time are constant, how do the fixed-interval model and the fixed-quantity model compare?

descending order

In order to rank inventory items in an A-B-C analysis, we arrange annual dollar values for all items in ______.

setup

In the economic production quantity (EPQ) model, ______ costs are analogous to ordering costs.

fewer; lower

In the economic production quantity (EPQ) model, the larger the production run size, the ______ the number of runs needed per year, and the _______ the annual setup cost.

Blank 1: shortage Blank 2: excess

In the single-period model, _______ cost is the unrealized profit per unit, while _______ cost is the difference between the purchase price and salvage value of an item.

Service level

In the single-period model, what is the key to determining the optimal stocking level?

maintenance and repairs

MRO stands for ______ inventory.

inventories

Manufacturing firms have used ___________ as buffers between successive operations to maintain continuity of production that would otherwise be disrupted by events such as breakdowns of equipment and accidents that cause a portion of the operation to shut down temporarily.

A- ±0.2 percent B- ±1 percent C- ±5 percent

Match the following inventory categories with the APICS recommendations for accuracy.

Q- order quantity d-bar- average demand OI- order interval LT- lead time (OI+LT)- expected demand during protection interval ad- standard deviation A- amount on hand at reorder time

Match the following terms from the equation to find the order size in a fixed-interval model with their meaning. Instructions

smooth production requirements

One of the reasons a firm carries inventory is to ______, that is, to achieve constant output and use inventory to meet overly high requirements during seasonal periods.

1. Start with the lowest price. Compute the minimum point for each price range until you find a feasible point. 2. If the minimum point at the lowest cost is feasible, it is the optimal solution. 3. Otherwise, compare total costs at the price breaks for all lower prices with the total cost of the feasible minimum point. 4. The optimal point is the quantity that yields the lowest total cost.

Place the following steps for finding the EOQ in a quantity discount model with variable H in the correct order.

1. Multiply 2. Arrange 3. Classify

Place the following steps for the A-B-C approach in the correct order. Instructions

Blank 1: probability Blank 2: stockout or stock out Blank 3: risk

Service level is the ______ that demand will not exceed supply. Service level = 100% - ______ ______.

Blank 1: fill or service Blank 2: rate or level

The ______ ______ is the percentage of demand filled by the inventory on hand.

A-B-C

The ______ approach classifies inventory items according to a measure of importance, such as annual dollar value.

independent-demand

The inventory models in this chapter relate primarily to ______ items, that is, items that are ready to be sold or used.

customer service; costs

The overall objective of inventory management is to achieve satisfactory levels of ______ while keeping inventory ______ reasonable.

True

True or false: Differences between the fixed-order interval and fixed-quantity model only become apparent when variability exists in demand or lead time.

-When should cycle counting be performed? -How much accuracy is needed? -Who should count it?

What are the key questions for management concerning cycle counting? (Select all that apply.)

The stockout risk a manager is willing to accept

What does 'z' represent in the safety stock formula?

Lead time

What does LT represent in the reorder point formula?

Safety stock given variability in demand during lead time.

What does the formula zσdLT represent?

The time since the last order

What triggers orders in a fixed-order-interval model?

The amount of each order

What varies in a fixed-order-interval (FOI) model?

Carrying costs per unit decline

When carrying costs are expressed as a percentage of price, what happens to carrying costs as the quantity discount increases?

(Q/2)H

Which is the correct formula for the annual holding cost in the EOQ model?

Imax/2

Which is the correct formula for the average inventory in the EPQ model?

sqrt((2DS)/H) * sqrt(p/(p-u))

Which is the correct formula for the economic production quantity?

(Qp/p)(p-u)

Which is the correct formula for the maximum inventory in the EPQ model?

d x LT

Which is the correct formula for the reorder point with no variability?

(Q/2)H + (D/Q)S

Which is the correct formula for the total annual cost in the EOQ model?

(Q/2)H + (D/Q)S + PD

Which is the correct formula for the total cost in the quantity discount model?

The cost to carry a single unit in inventory for a length of time.

Which is the definition of holding cost in the EOQ model?

-Annual demand is known. -Lead time is known.

Which of the following are assumptions of the EOQ model?

-In-transit goods -Raw materials -Maintenance and repairs -Work-in-process -Finished goods

Which of the following are considered types of inventory in a manufacturing facility?

To provide an investment vehicle.

Which of the following is NOT a normal function of inventory?

To take advantage of existing storage space.

Which of the following is NOT a normal function of inventory?

Only periodic checks of inventory required

Which of the following is correct regarding inventory monitoring under the fixed-order-interval-model?

The firm desires to minimize inventory requirements.

Which of the following is not a reason for using the fixed-order-interval model?

Dividends

Which of the following is not a way inventory affects performance measures?

d-bar(OI + LT) + zσd√(OI+LT) - A

Which of the following is the correct formula for the order quantity in the fixed-order-interval model?

Cs/(Cs+Ce)

Which of the following is the correct formula for the service level in the single period model with continuous stocking levels?

Cs/(Cs+Ce)

Which of the following is the correct formula for the service level in the single period model with discrete stocking levels?

When to order How much to order

Which of the following is/are the basic issue/s of inventory management?

-After finding the optimal service level, pick the next highest stocking level. -If the SL is equal to one of the probabilities, both that level and the next higher one have the same minimum cost.

Which of the following statements about discrete stocking levels in the single-period model is/are true?

-UPCs and point-of-sale systems do not work well together. -Perpetual inventory systems are always able to accurately report inventory levels. -An advantage of periodic systems is the lack of safety stock required.

Which of the following statements about inventory control systems is/are not true?

-Orders in two-bin systems may not be placed at the right time. -Some businesses are moving towards using RFID tags to track inventory.

Which of the following statements about inventory control systems is/are true?

-Holding costs can include the cost of insurance. -Ordering and setup costs are treated the same.

Which of the following statements about inventory costs is/are true?

-One of the goals is to keep inventory costs within reasonable bounds. -One of the goals is to achieve good customer service. -Inventory managers must decide how much to order.

Which of the following statements about inventory management is/are true?

Turnover is the ratio of sales to inventory.

Which of the following statements about inventory turnover is not true?

-Total cost must include product cost to evaluate options. -The optimal quantity may not be the same as the EOQ.

Which of the following statements about quantity discount models is/are true?

-Safety stock is required if lead time is variable. -Safety stock is required if demand is variable.

Which of the following statements about reorder point ordering is/are true?

-Its purpose is to identify inventory items that are the most important to the business. -It is intended to help firms allocate control efforts based on the relative importance of items in inventory. -Approximately 10% to 20% of items account for about 60% to 70% of annual dollar value.

Which of the following statements about the A-B-C approach is/are true?

-Orders are placed when there is just enough inventory left to cover the lead time demand. -The EOQ minimizes the sum of annual ordering and holding costs.

Which of the following statements about the EOQ model is/are true?

-The assumptions are the same as in the EOQ model. -The maximum inventory level is the same as the EPQ.

Which of the following statements about the economic production quantity is/are not true?

It can produce savings in shipping costs. The order point is fixed.

Which of the following statements about the fixed-order-interval model is/are true?

-It is used for ordering items that have a limited lifespan. -It minimizes costs of shortage and excess.

Which of the following statements about the single-period model is/are true?

Independent-demand items

Which of the following types of inventory are items that are ready to be sold?

Average quantity discount

Which of these is NOT a factor that determines the appropriate amount of safety stock?

-Carrying costs can be stated as a percentage of item price, -Carrying costs can be stated as a constant.

Which statement about holding costs, also known as carrying costs, are correct? (Select all that apply.)

It is used when production occurs in batches.

Which statement is true for the economic production quantity (EPQ) model?

Safety stock

Which type of inventory is held to reduce the probability of a stockout?

Blank 1: Inventory Blank 2: Turnover

______ _______ is the ratio of average cost of goods sold to average inventory investment.

Perpetual

______ inventory systems continuously keep track of changes to the inventory system and a fixed quantity is ordered when the amount on hand reaches a predetermined level.

Blank 1: Cycle

______ stock is the amount of inventory required to meet expected demand.

Shortage

_______ cost is incurred by a firm when demand for inventory exceeds supply.

Periodic

________ inventory systems take physical inventory counts at fixed intervals and decide how much to reorder of each item.