Chapter 11 - Inventory Management

Which of the following is influenced by the customer order decoupling point?

Lead time Inventory investment

Match the advantages of inventory with their definitions.

Maintain independence of operations matches, Allow the work center flexibility to work without undue influence from other work centers Meet variation in product demand matches, Acts as a buffer to absorb unexpected periods of high demand Take advantage of economic purchase order size matches, Order larger quantities to reduce shipping, receiving, and clerical costs Accommodate variability in raw material delivery time matches, Provide a buffer to absorb unexpected shortages or disruptions from vendors

If a company is trying to find the optimal amount of inventory to produce for a single event, it is likely to deploy which type of inventory model?

Single-period

Southern Printing Corp. produces high-end booklets for university graduations listing all the participating students at a given university. What inventory model would Southern use to optimize the amount of booklet inventory produced for each graduation?

Single-period

A fixed-order quantity model is triggered by inventory dropping to a specified level.

True

When the number of needed items are computed based on the number of HIGHER-LEVEL items produced, one is operating in a(n) __________ demand environment.

dependent

Fixed-time period is an inventory control method where firms place orders periodically, but the order quantity is ___________ every time.

different

In a fixed-time period system, inventory monitoring happens ______ frequently than in a fixed-order quantity system.

less

Firms enter into _____________ relationships with vendors, this changes "how many is ordered" to "how many is delivered" with each order.

long-term

A supply of materials at a work center allows workers to

maintain independence of operations.

Work in process is considered ________ inventory

manufacturing

Group C items may only be ordered ___ or ___ due to their low importance and value.

monthly, bimonthly

In services, inventory generally refers to any ____ good and the ____ necessary to administer the service.

tangible, supplies

In services, inventory generally refers to any ____ good and the ______ necessary to administer the service.

tangible, supplies

In inventory management, the Pareto principle suggests that ___% of the items account for ___% of the total inventory cost.

20,80

Firm ABC has an annual demand for 2,000 widgets. Their typical order quantity is 400 units and they maintain a safety stock of 50 units. What is their average inventory?

250

In the ABC approach, B items account for approximately ___% of the items in inventory.

35

____ is the stock of any item or resource used in an organization.

Inventory

The z-score associated with a ___ percent probability of not stocking out is 1.64.

95

Computer cycle counting programs can produce a cycle count notice after which events?

A positive balance but a backorder was created A specified level of activity A zero balance on-hand

From highest percentage to lowest percentage, rank the ABC categories in terms of value of items in inventory: Instructions

A, B, C

Which of the following is/are components of total annual costs in a fixed-quantity inventory system?

Annual holding costs Annual ordering costs Annual purchase costs

Which of the following is not a reason to use inventory as a safeguard against raw material delivery time variation?

As a supplement to vendor-managed inventory programs

Which of the following is NOT a good reason to hold inventory?

As needed to improve company cash flow

Which of the following is not considered when calculating the order quantity in a fixed-time period model?

Current stock at the supplier

_____ inventory includes items in-transit or at a warehouse ready for shipment to the customer.

Distributions

The fixed-order quantity model has a larger average inventory because it must also protect against stock-out during the review period, T; fixed-time period model has no review period.

False

Which of the following is considered distribution inventory?

Finished goods inventory in a distribution center

Which of the following is a form of inventory?

Finished products held in a warehouse Parts waiting to be assembled Raw materials held in a warehouse

Which multiperiod inventory system is used for high-priced or critical items?

Fixed-order quantity

XYZ Company uses an inventory model where the amount requisitioned is fixed and ordering is triggered by inventory dropping to a specified level. What type of inventory system is XYZ using?

Fixed-order quantity

Which inventory system requires continuous monitoring of inventory levels?

Fixed-order quantity system

Which of the following is also called a periodic review system?

Fixed-time period

Which of the following highlights a dependent demand scenario?

Four tires that are needed to complete the assembly of a car

Mastertech Furniture Company makes chairs. When Walmart orders finished chairs from Mastertech, it creates what type of demand on inventory?

Independent

Which of the following are inventory holding costs?

Insurance Opportunity cost of capital Storage facility costs

___ turn is the ratio of costs of goods sold to average inventory value.

Inventory

According to the inventory control system matrix, if a company has highly independent products and high transaction costs, it is likely to deploy what type inventory control process?

Manual two-bin

In Fixed-Order Quantity Systems, the amount of inventory that minimizes total costs is called the _________ , ___________ , ____________.

Optimal, order, quantity

Because of favorable pricing in the short-term, a company is looking at ordering a larger-than-needed optimal quantity of an item, and keeping the excess in inventory. Which model is the company likely using to arrive at this decision?

Price break

One purpose of inventory is to provide flexibility in______ ______, this can increase lead times but reduce setup costs.

Production scheduling

Which of the following is the correct total annual cost equation?

TC = DC + (D/Q)s + (Q/2)H

Which of the following is not a cost associated with inventory management?

Transportation costs

True or false: By taking advantage of economic purchase order sizes, one can usually achieve lower per-unit shipping costs.

True

True or false: The economic order quantity depends upon three factors: the annual demand, the setup cost, and the annual holding cost of one unit of inventory.

True

True or false: The order quantity in a fixed-order quantity model is the same, regardless if demand is known or uncertain.

True

True or false: When a vendor makes routine visits to a firm to take orders, a fixed-time period model may be a good choice.

True

True or false: When analyzing a price-break model, it is possible that the economic order quantity that is calculated is either higher or lower than the range to which the price corresponds.

True

True or false: When safety stock is expected to be on-hand, the average inventory value calculation is (Q/2 + SS)C.

True

Which of the following is a policy and control of an inventory system?

When stock should be replenished

Which of the following is/are manufacturing inventory items?

Work-in-process Finished products Component parts in manufacturing

Stock carried to absorb variation in demand is known as ____ stock.

buffer

Stock carried to absorb variation in demand is known as _____ stock.

buffer

Fixed-order quantity models assume there is _________ tracking of inventory.

continual

Calculation of the reorder point for a fixed-quantity model with safety stock requires that one know the average daily_____ and the _____ time.

demand, lead

Inventory turn is calculated by

dividing cost of goods sold by average inventory value.

Inventory classifications of A, B and C are based on

dollar value or measure of importance.

The economic order quantity (Qopt) occurs when the annual ordering and holding costs are .

equal

If Acme groceries wanted a 0.95 probability of not stocking out, the "z" value that would be used in the calculation to find the safety stock is _______.

equal to 1.64, located in the z chart.

Demand is characterized as INDEPENDENT if it comes from sources _________ to the firm and is NOT related to other ____________.

external, products.

A fixed-time period inventory model carries a _____ level of safety stock than a fixed-order quantity system.

higher

If manufacturing equipment within a facility produces at different rates, one can use inventory to maintain _____ of operations.

independence

Campbell's Soup makes products for Kroger and other grocery stores based on sales to the final consumer. This inventory management environment is characterized as ________ demand.

independent

A single period _ model helps in situations where a company is trying to produce the optimal quantity of inventory for a single event minimizing overproduction costs and potential lost revenues.

inventory

The current amount of inventory (on-hand quantity plus on-order minus backordered) is known as the

inventory position.

In a fixed-time period inventory model, the average demand over the vulnerable period depends on the review cycle (T) and the constant ___ time (L).

lead

The time between placing an order and receiving the item(s) is called the

lead time

As it relates to inventory, a buyer's time expended to prepare the purchase order for more material is considered a(n) ____ cost.

ordering

The managerial and clerical costs to prepare purchase or production orders are called

ordering costs.

In a single period model, Co represents the cost per unit associated with the estimating of demand.

over

Safety stock inventory levels are determined by the _______ of stock out at a given desired service level.

probability

Safety stock inventory levels are determined by the ________ of stock out at a given desired service level.

probability

A fixed-order _____ model uses a reorder point, R, to trigger an order of an optimal amount of product, labeled Q.

quantity

In companies using a fixed-order quantity model, a consistent inventory level is used as a trigger to order more product. This inventory level is called the

reorder point.

Acme Company carries an additional level of inventory beyond the expected demand during reorder lead times. This additional inventory is known as

safety stock.

Delta Company uses special equipment and personnel to changeover production runs quickly. The costs associated with this changeover approach are considered

setup costs

When a customer cancels an order because of item backlogs, that lost revenue is a(n) _____ cost.

shortage

When a customer cancels an order because of item backlogs, the lost revenue is a(n) _____ cost.

shortage

When price varies with the order size, the first step in the analysis process is to

sort the prices from lowest to highest and calculate the EOQ for each price level.

Inventory turn is a key measure for a business and directly relates to

the financial performance of the firm.

When calculating the reorder point for a fixed-quantity model with safety stock, the value "z" represents

the number of standard deviations associated with a given service probability.

When placing an order for a single period, the order quantity should be increased as long as

the probability of selling what is ordered is less than or equal to Cu/Cu+Co

The fixed-time period models are ____ triggered while the fixed-order quantity models are ____ triggered.

time; event

The sum of annual purchasing costs, annual ordering costs, and annual holding costs is known as the

total annual cost.

In constructing any inventory model, there has to be a functional relationship between the

variable of interest and the measure of effectiveness.