Chapter 12

15) Identify the four types of inventory.

(1) raw material inventory; (2) work-in-process inventory; (3) maintenance/repair/operating supply (MRO) inventory; and (4) finished-goods inventory

14) What are the four functions of inventory?

(1) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand; (2) to decouple various parts of the production process; (3) to take advantage of quantity discounts; and (4) to hedge against inflation

6) Which of the following statements regarding Amazon.com is FALSE? A) The company was opened by Jeff Bezos in 1995. B) The company was founded as, and still is, a "virtual" retailer with no inventory. C) The company is now a world-class leader in warehouse automation and management. D) The company uses both United Parcel Service and the U.S. Postal Service as shippers. E) Amazon obtains its competitive advantage through inventory management.

B

8) Which of the following would NOT generally be a motive for a firm to hold inventories? A) to decouple various parts of the production process B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand C) to take advantage of quantity discounts D) to minimize holding costs E) to hedge against inflation

D

9) Which of the following is NOT one of the four main types of inventory? A) raw material inventory B) work-in-process inventory C) maintenance/repair/operating supply inventory D) safety stock inventory E) finished-goods inventory

D

13) Explain what "decoupling" means in the context of inventory management.

Decoupling means to separate various parts of the production process. Each of the parts can then function at its own best pace.

3) Which of the following is an element of inventory holding costs? A) housing costs B) material handling costs C) investment costs D) pilferage, scrap, and obsolescence E) All of the above are elements of inventory holding costs.

E

4) Which category of inventory holding costs has a much higher percentage than average for rapid-change industries such as PCs and cell phones? A) housing costs B) material handling costs C) labor cost D) investment costs E) pilferage, scrap, and obsolescence

E

7) Which of the following is a function of inventory? A) to decouple various parts of the production process B) to provide a selection of goods for anticipated customer demand and to separate the firm from fluctuations in that demand C) to take advantage of quantity discounts D) to hedge against inflation E) All of the above are functions of inventory.

E

2) Insurance and taxes on inventory are part of the costs known as setup or ordering costs. T/F

F

1) According to the global company profile, Amazon.com's advantage in inventory management comes from its almost fanatical use of economic order quantity and safety stock calculations. T/F

F

3) Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management. T/F

F

5) Work-in-process inventory is devoted to maintenance, repair, and operating materials. T/F

F

5) Several inventory models assume "independent demand." Explain what that term means and why the assumption is important.

Independent demand means that demand for one particular item does not affect, and is not affected by, demand for a different item. When item demands are dependent, such as when wheels are demanded for assembly onto lawnmowers, different models (Chapter 14) may apply.

16) What is MRO an acronym for? What is the function of MRO inventories?

MRO inventories are devoted to maintenance/repair/operating supplies. They exist because the need and timing for maintenance and repair of some equipment are unknown.

1) The demand for automobiles would be considered as independent demand. T/F

T

2) A major challenge in inventory management is to maintain a balance between inventory investment and customer service. T/F

T

4) One function of inventory is to take advantage of quantity discounts. T/F

T

6) Identify the typical components that constitute inventory holding or carrying costs.

Typical components of inventory holding or carrying costs include housing costs, material handling costs, labor cost from extra handling, investment costs, pilferage, scrap, and obsolescence.

7) Identify the typical cost components that constitute ordering costs in inventory systems.

Typical components of ordering costs include cost of supplies, forms, order processing, clerical support, and so forth.

12) ________ inventory is material that is usually purchased, but has yet to enter the manufacturing process.

raw material

10) Amazon's original concept of operating without inventory has given way to a model in which Amazon is a world-class leader in ________.

warehouse automation and management

11) Inventory that separates various parts of the production process performs a(n) ________ function.

decoupling