Inventory management is a complex process, particularly for larger organizations, but the basics are essentially the same regardless of the organization’s size or type.
In inventory management, goods are delivered into the receiving area of a warehouse in the form of raw materials or components and are put into stock areas or shelves.
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.
False
2. A major challenge in inventory management is to maintain a balance between inventory investment and customer service.
True
3. Which item to order and with which supplier the order should be placed are the two fundamental issues in inventory management.
False
4. One function of inventory is to take advantage of quantity discounts.
True
5. Work-in-process inventory is devoted to maintenance, repair, and operations.
False
6. ABC analysis classifies inventoried items into three groups, usually based on annual units or quantities used.
False
7. In ABC analysis, “A” Items are the most tightly controlled.
True
8. ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.
False
9. Cycle counting is an inventory control technique exclusively used for cyclical items.
False
10. One advantage of cycle counting is that it maintains accurate inventory records.
True
Terms to Learn
One use of inventory is
to provide a hedge against inflation.
The objective of inventory management is to
strike a balance between inventory investment and customer service.
Which of the following is NOT a type of inventory?
MRP
Which of the following types of inventory describes inventory that has been purchased but not processed?
raw material inventory
ABC analysis divides an organization’s on-hand inventory into three classes based upon
annual dollar volume.
Policies based on ABC analysis might include investing
more in supplier development for A items.
Which of the following does NOT belong to ordering costs?
interest payments
Which of the following does NOT belong to holding costs?
order processing
What is the cost to prepare a machine or process for production?
setup cost
Inventory control models assume that demand for an item is
either independent of or dependent on the demand for other items.
What is a system for ordering items that have little or no value at the end of a sales period?
single-period inventory model
A single-period inventory model is NOT applicable for
furniture.
A system that triggers ordering on a uniform time basis is called
a fixed-period system.
A system that keeps track of each withdrawal or addition to inventory continuously is
a perpetual inventory system.
Which of the following statements is NOT true about a fixed-period system?
A fixed-period system is also called “continuous review.”
Which of the following is NOT one of the assumptions of fixed-period systems?
Lead times are variable.
Cycle counting
is a process by which inventory records are verified.
The difference(s) between the basic EOQ model and the production order quantity model is (are) that
the production order quantity model does not require the assumption of instantaneous delivery.
Extra units that are held in inventory to reduce stockouts are called
safety stock.
Inventory record accuracy would be decreased by
increasing stockroom accessibility.
The two most important inventory-based questions answered by the typical inventory model are
when to place an order and how many of an item to order.
The appropriate level of safety stock is typically determined by
choosing the level of safety stock that assures a given service level.
In the probabilistic model, increasing the service level will
increase the cost of the inventory policy.
A system that triggers ordering on a uniform time basis is called a
fixed-period system.
A company wishes to determine the EOQ for an item that has an annual demand of 2,000 units, a cost per order of $75, and annual carrying cost of $7.50 per unit. What is the EOQ?
200 units
A production facility is trying to determine the best batch size for an item that is produced intermittently. This item has an annual demand of 1,000 units, an annual carrying cost of $10 per unit, and a setup cost of $400. They operate 50 weeks per year, and can produce 40 units per week. What is the best batch size for this item?
400
A store wants to ensure a shelf full of marshmallow peeps as the holiday season approaches. Daily demand for peeps is normally distributed with a mean of 25 and a standard deviation of 5. Lead time is 3 days and the store intends a 98% service level. What is their reorder point?
93
A production facility is trying to expand production on a machine that is currently used to produce one part. This item has an annual demand of 1,000 units, an annual carrying cost of $10 per unit, and a setup cost of $400. They operate 50 weeks per year, and can produce 40 units per week. What percentage of the time are they using this machine?
50%
Which of the following types of inventory describes inventory that has been purchased but not processed?
raw material inventory
What is the overall annual inventory turnover at a Frito-Lay plant?
150
Which of the following assumptions apply to the production order quantity model but not to the EOQ model?
The production rate is finite.
This an important OM advancement because
RFID tags on tools and implants can save lives.
MedEx is an inventory system because
it can reorder based on implants used.
The “Smart Implant”
can help track a patient’s healing process.
Innovapaedics’ new advance includes
All of the above.
A major chip ingredient at Frito-Lay is
potatoes.
What is the value of MRO (maintenance, repair, operating supplies) in the Orlando plant?
$1.4 million
How much seasoning is used in a week’s time at the plant shown in the video?
1 truck load
A statistical model applicable when product demand or any other variable is not known but can be specified by means of a probability distribution is referred as
a probabilistic model.
Which of the following statement is NOT true?
Having certain demand raises the possibility of a stockout.
In the single-period inventory model, the overage cost is
cost per unit minus− salvage value per unit.
For seasonal products, the service level should be set to equal
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