Deck 15: Managing Service Inventory

Question 1

Equating the annual holding and ordering costs can be used to derive the EOQ formula.

Answer 1

True

Question 2

One role of holding inventory is to hedge against anticipated increases in the cost of the inventoried items.

Answer 2

True

Question 3

Penalties for late delivery or nondelivery are part of shortage costs.

Answer 3

True

Question 4

POS scanning is used to initiate a purchase order to a pre-approved vendor automatically when the stock levels are depleted (or reach a reorder point).

Question 5

For the planned shortage model, when the cost of backorders approaches zero, the order quantity becomes undefined.

Question 6

Patients waiting for heart transplants are an example of an inventory model that has a backorder cost of zero.

Question 7

Information management has been the key in allowing services to meet customer demands without incurring the expense of excess inventory.

Question 8

In the critical fractile ratio, the numerator refers to the cost of overestimating demand.

Question 9

Obsolescence is part of shortage costs.

Question 10

Dependent demand is described by a probability distribution.

Question 11

Forward buying is used to avoid expensive interruptions of service, as a stock out at any stage of the physical goods distribution system would have far-reaching consequences for the other stages.

Question 12

Lead-time inventories are stocks that have been ordered but not yet received.

Question 13

In retailing, profit is a function of mark-up multiplied by turnover.
Multiple Choice

Question 14

Point-of-sale scanning became feasible only when industry agreed upon a universal system of bar coding.

Question 15

Shelf life can be a constraint on the amount of inventory held.

Question 16

The strategy of maintaining a speculative inventory is known as forward hedging.

Question 17

ABC analysis is an application of the 80-20 rule.

Question 18

A continuous review system is generally used for Class C items in the ABC system of classification.

Question 19

Inventory management is concerned with two basic questions: how much to order and when to place an order.

Question 20

Radio Frequency Identification (RFID) is replacing bar coding.

Question 21

Which one of the following is most important for a continuous review system?

A) constant lead time.
B) fixed order quantity.
C) POS scanning.
D) normal demand distribution.

Question 22

When a quantity discount is offered, the first step should be to compute:

A) EOQ for the highest price per unit.
B) EOQ for the lowest price per unit.
C) the total annual cost for the highest quantity discount.
D) the total annual cost for the lowest quantity discount.

Question 23

Which one of the following is most affected by the bullwhip effect?

A) customer.
B) retailer.
C) distributor.
D) wholesaler.

Question 24

Which item below would not be a good candidate for a planned shortage model?

A) exotic sports car.
B) donor transplant organ.
C) sale item.
D) staple.

Question 25

For an electronic super store using the ABC inventory classification system, ________ would fall in class A.

A) television sets
B) entertainment centers
C) stereos
D) desk top computers

Question 26

In the annual cost curve for the EOQ model, the ordering cost _________ with the order quantity

A) increases linearly
B) decreases linearly
C) increases negative exponentially
D) decreases negative exponentially

Question 27

In the "Newsvendor Problem", the underlying concept is that the newsvendor should continue increasing the stock until the expected loss on the last sale ______ the expected revenue on the last unit stocked.

A) equals
B) just exceeds
C) is just lower than
D) greatly exceeds

Question 28

Which one of the following is not a role that inventories play in a distribution system?

A) decoupling
B) speculative
C) anticipative
D) cyclical

Question 29

Which feature below is not associated with the periodic review system?

A) order consolidation.
B) fixed order quantity.
C) C items.
D) small safety stocks.

Question 30

For seasonal items a ______ system could be used to manage inventory.

A) continuous review
B) periodic review
C) retail discounting
D) single-period model

Question 31

Taxes and insurance would fall under _____ costs.

A) ordering
B) receiving and inspection
C) holding or carrying
D) shortage

Question 32

Which one of the following concepts is not associated with the news-vendor problem?

A) breakeven analysis.
B) incremental analysis.
C) expected value analysis.
D) trade-off analysis.

Question 33

An inventory model with quantity discounts has all of the following features, except:

A) savings in manufacture.
B) savings in transportation.
C) increased holding costs.
D) increased ordering costs.

Question 34

The elimination of paper-based documents between organizatins is made possible by:

A) ERP.
B) EDI.
C) MRP.
D) POS.

Question 35

In the design of an inventory system all but one of the following is considered:

A) type of customer demand.
B) relevant inventory costs.
C) constraints.
D) safety stocks.

Question 36

The central idea in the retail-discounting model is that:

A) money can be made selling below cost.
B) turnover of stock generates money for future investment.
C) the percent mark-up over cost is discretionary.
D) discount pricing generates sales.

Question 37

Inventory management costs include all but one of the following:

A) ordering.
B) purchase.
C) receiving.
D) shortage.

Question 38

In the ABC inventory classification, C items can best be described as:

A) expensive.
B) among the most numerous.
C) having a high stockout cost.
D) requiring close attention.

Question 39

Service level influences _______ and ________.

A) reorder point, safety stock
B) reorder point, backorder quantity
C) safety stock, backorder quantity
D) backorder quantity, lead-time demand

Question 40

The total inventory for a retailer is comprised of in-transit inventory, safety stock, and __________ inventory.

A) decoupling
B) seasonal
C) cyclical
D) speculative