Chapter 12 - Managing Inventories in Supply Chains
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 In the given scenario, the IP would be 750 units. IP is defined as the on-hand quantity (OH) plus any orders placed but which have not arrived (called scheduled receipts, SR) minus any backorders (BO), or IP = OH + SR - BO. Therefore, IP = 700 + 150 - 100 = 750 units.
_____ is the desired probability of not having a stockout during a lead-time period.
A service level
_____ inventory is inventory that results from purchasing or producing in larger lots than are needed for immediate consumption or sale.
Cycle
__________ demand varies over time. __________ demand remains stable.
Dynamic; Static
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 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
__________ 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
Which of the following statements is true of the independent demand for a stock-keeping unit (SKU)?
It needs to be forecasted.
Which of the following statements is true of a fixed-period system (FPS)?
It orders sufficient stock at the time of review to bring the inventory position up to the replenishment level (M).
__________ is the time between placement of an order and its receipt. One of the factors that affects it is __________.
Lead time; Buyer order frequency and size
Q* can be found using the Excel function _____.
NORM.INV Q* can be found using the Excel function = NORM.INV (probability, mean, standard deviation).
A 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 size Q must satisfy the condition _____.
P(demand ≤ Q*) = 1/3
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. Using Equation 12.1 (Inventory Position = Inventory On hand plus Scheduled Receipts minus Back orders (IP = 300 + 0 - 0).
_____ 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.
_____ 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
__________ 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
__________ : 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
_____ inventory consists of partially completed products in various stages of completion that are awaiting further processing.
Work-in-process
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 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
In the context of a fixed-order-quantity system, stockouts occur whenever the lead-time demand _____.
exceeds the reorder point
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
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
Average cycle inventory can be calculated as follows: = (Q + 0) / 2. In this formula, Q represents __________ and 0 represents __________.
maximum inventory; minimum inventory
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.
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:
more than 1,350 but less than 1,550 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 stockout 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.
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 following data 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:
more than 55 boxes.
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 600 but less than or equal to 800 units.
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.
Setup costs depend on the number of:
orders placed.
Single-period inventory models are used in situations involving:
perishable items that cannot be carried in inventory.
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
In the context of the single-period inventory model, the cost per item of overestimating demand is known as _____ cost.
salvage
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
Inventory position is defined as the on-hand quantity, plus __________, minus any __________.
scheduled receipts; Backorders
Stable demand is usually called_____ demand.
static
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
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
In the context of inventory management, a(n) _____ is a single item or asset stored at a particular location.
stock-keeping unit
In the context of inventory costs, _____ costs can reflect backorders or service interruptions for external customers.
stockout
In the context of managing inventories in supply chains, _____ is the time between placement of an order and its receipt.
the lead time
All of the following are false about fixed-period inventory systems without stochastic demand, except:
the optimal replenishment level is equal to the demand during the lead time plus the review period
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