Deck 11: Independent Demand Ordering Systems

Question 1

If the sum of the absolute deviations of demand was 500 for 10 periods, MAD would be:

A) 5
B) 500
C) 50
D) 0.02
E) none of the above

Answer 1

C

Question 2

Among other things the amount of safety stock carried will depend upon:

A) the frequency of reorder
B) the service level desired
C) variability of demand during the lead time
D) all the above
E) a and b above

Answer 2

D

Question 3

The demand placed on a factory or a central warehouse by distribution centers is considered:

A) dependent
B) independent
C) uniform
D) all of the above
E) none of the above

Answer 3

A

Question 4

Which of the following systems are used to determine when the order point is reached?
I) Two-bin system.
II) Perpetual inventory system.
III) Periodic inventory system.
IV) Safety stock system.

A) all are used to tell when the order point is reached
B) I and II only are used
C) I, II and III only are used
D) I and III only are used
E) II and III only are used

Question 5

Select the description which most closely fits the term SAFETY STOCK:

A) the time it takes to replenish an item in inventory.
B) extra inventory of an item carried to protect against variations in demand during lead time
C) a listing of components required to manufacture a product
D) the time when an order should be placed
E) none of the above

Question 6

Which of the following statements is best?

A) order point = DDLT + SS
B) average inventory = Q ÷ 2 + SS
C) d and c are true
C) safety stock is always needed
D) a and b are true

Question 7

Which of the following are basic systems for determining when to order INDEPENDENT demand items?
I) Order point system
II) Periodic review system
III) Material Requirements Planning

A) I only
B) II only
C) I and II only
D) I and III only
E) II and III only

Question 8

Which of the following statements is best?

A) most demand patterns tend to be stable and predictable
B) the most common predictable pattern is called a normal distribution
C) the normal curve can be described by its average (mean) and the variation of actual demand about the average
D) all the above are true
E) only and b are true

Question 9

is an inventory record system that keeps a continuous account of transactions as they occur:

A) Perpetual inventory system
B) Periodic inventory system
C) Two-bin system
D) Safety stock system
E) All the above keep a continuous account

Question 10

Select the description which most closely fits the term LEAD TIME:

A) the time it takes to replenish an item in inventory
B) extra inventory of an item carried to protect against variations in demand during lead time
C) a listing of components required to manufacture a product
D) the time when an order should be placed
E) none of the above

Question 11

Which of the following statements is best?

A) safety stock depends on the service level desired
B) safety stock depends on the length of the lead time
C) safety stock depends on the variation of demand during the lead time
D) all of the above are correct
E) none of the above is correct

Question 12

Which of the following is the best statement?

A) stockouts do not cost money because customers are willing to wait
B) the cost of a stockout will vary depending on the market served, the customer, and competition
C) stockouts can occur at any time in the inventory cycle
D) stockouts do not depend on the frequency of reorder
E) all the above statements are true

Question 13

Management is willing to tolerate one stockout every 2 years for a specific item. If 10 orders are placed for the item each year the service level desired is:

A) 80%
B) 85%
C) 90%
D) 95%
E) none of the above

Question 14

Management states that they will tolerate one stockout every year for a specific item. If 10 orders are placed for the item each year the service level desired is:

A) 80%
B) 85%
C) 90%
D) 95%
E) none of the above

Question 15

When using the order point system which of the following is true?

A) order quantities are usually fixed
B) the order point depends upon the demand during the lead time plus safety stock
C) time intervals between orders are constant
D) a and b above
E) b and c above

Question 16

Select the description which most closely fits the term ORDER POINT:

A) the time it takes to replenish an item in inventory.
B) extra inventory of an item carried to protect against variations in demand during lead time
C) a listing of components required to manufacture a product
D) the time when an order should be placed
E) none of the above

Question 17

The average demand for an item is 1000 per month. The mean absolute deviation of monthly demand is 300 units. The MAD for yearly sales will be approximately:

A) 3600 units
B) 12,000 units
C) 1040 units
D) 3464 units
E) none of the above

Question 18

Which of the following statements is true about safety stock?

A) it must always be carried
B) it depends only on the amount of demand
C) it depends on the required service level
D) all the above are true
E) none of the above is true

Question 19

Given that the lead time is 1 week and the sigma is 100 units, if the lead time changes to 2 weeks then the sigma would change to about:

A) 200 units
B) 180 units
C) 160 units
D) 140 units
E) 120 units

Question 20

If the standard deviation of demand is 100 units and the average demand is 1000 units, then we can be 95% confident that actual sales will be 1000 units plus or minus about:

A) 100 units
B) 150 units
C) 200 units
D) 300 units
E) 400 units

Question 21

An order system in which the order quantity is allowed to vary and the order cycle is fixed is called the:

A) periodic review system
B) two-bin system
C) reorder point system
D) red-tag system
E) none of the above

Question 22

A company that keeps no safety stock can expect an average service level of

A) 0%
B) 15%
C) 50%
D) 85%
E) Safety stock does not affect the service level.

Question 23

For a given item the lead time is 1 week, the on hand inventory is 50 units, demand is 20 units per week, safety stock is set at 3 weeks supply and the item is ordered every 2 weeks. The order quantity should be:

A) 70 units
B) 60 units
C) 50 units
D) 40 units
E) 120 units

Question 24

A company that has regular replenishments of small value items such as a grocery store would use the system.

A) Order Point
B) Materials Requirements Planning
C) Push
D) Kanban
E) Periodic Review

Question 25

Demand on Central Supply tends to be:

A) Smoothed out with planned orders.
B) Continuous
C) Monotonous
D) Lower than the Distribution Centers
E) Lumpy

Question 26

The Gross Requirements on Central Supply are:

A) The sum of the planned order releases from the Distribution Centers
B) Taken from the Distribution Centers and offset by the lead time
C) The sum of the Gross Requirements for the Distribution Centers
D) The sum of the gross requirements for the DC's offset by the lead time.
E) The same as the Intransit Inventory

Question 27

A product has a standard deviation of demand of 15. The safety stock for a service level of 98%
Would be approximately:

A) 15
B) 26
C) 31
D) 8
E) 14.7

Question 28

Use the following information to answer the next two questions
Distribution Center A Transit time: 1week Order Quantity 200 units
$\begin{array}{lccccc}\text { Week } && 1 & 2 & 3 & 4 & 5 \\\text { Gross Requirements } && 150 & 125 & 125 & 100 & 150 \\\text { In Transit } && 200 & & & &\\\text { Projected Available }&75\\\text { Planned Order Release }\end{array}$

-What will be the projected available for periods 2, 3 and 4?

A) 200, 75, 175
B) 125, 0, 100
C) 75, 175, 25
D) 0, 75, 175
E) 125, 0, 75

Question 29

If the on hand inventory is 40 units, the safety stock 20 units and the target level is 120 units then an order should be placed for:

A) 100 units
B) 80 units
C) 60 units
D) 40 units
E) 20 units

Question 30

Which of the following statements is best?
I) In a pull system central supply determines what is needed by the distribution centers
II) In a push system all decisions are made by the distribution centers.
III) An advantage of a pull system is central coordination

A) I and II only are true
B) II and III only are true
C) I and III only are true
D) all the above are true
E) none of the above are true

Question 31

For a given item controlled by a periodic review system the target level is 100 units. If there are 40 units on the shelf and the lead time is 2 weeks then the order quantity should be:

A) 140 units
B) 120 units
C) 85 units
D) 60 units
E) 40 units

Question 32

If the lead time is 1 week, the review period 4 weeks, the average demand 100 units per week and the safety stock is 50 units, the target level will be:

A) 150 units
B) 200 units
C) 250 units
D) 300 units
E) 550 units

Question 33

Use the following information to answer the next two questions
Distribution Center A Transit time: 1week Order Quantity 200 units
$\begin{array}{lccccc}\text { Week } && 1 & 2 & 3 & 4 & 5 \\\text { Gross Requirements } && 150 & 125 & 125 & 100 & 150 \\\text { In Transit } && 200 & & & &\\\text { Projected Available }&75\\\text { Planned Order Release }\end{array}$

-There will be a planned order release(s) in weeks:

A) 2 and 3
B) 1 and 2
C) 1 and 3
D) 1, 2 and 3
E) Intransit inventory will cover all the orders.

Question 34

Lead time for a given item is 3 weeks and sales have been recorded in 1 week intervals. If the Standard Deviation for the sales interval is 25 then the Standard Deviation for the lead time should be approximately:

A) 25
B) 43
C) 75
D) 14
E) 8

Question 35

The distribution inventory management system which forecasts when the various demands will be made by the system on central supply is called:

A) pull system
B) push system
C) distribution requirements planning
D) inventory replenishment
E) order point system

Question 36

Using the periodic review system the target level is:

A) forecast demand during lead time
B) forecast demand during the review period
C) the sum of a and b
D) the sum of a and b plus the safety stock
E) none of the above

Question 37

Which of the following is correct?

A) order quantities are fixed in the periodic review system
B) the two-bin system is an example of the order point system
C) the safety stock does not depend upon the frequency of reorder
D) all of the above are true
E) none of the above is true

Question 38

If the lead time is 1 week, the review period 1 week, the average demand 100 units per week and the safety stock is 50 units, the target level will be:

A) 150 units
B) 200 units
C) 250 units
D) 300 units
E) none of the above

Question 39

Management has carefully measured the standard deviation of the demand of a product and plans to use this to calculate the level of safety stock. If they keep one Standard Deviation of safety stock then
The expected service level should be approximately:

A) 15%
B) 35%
C) 85%
D) 90%
E) 100%

Question 40

Which of the following are objectives of distribution inventory management?
I) To provide the required level of customer service.
II) To minimize the costs of transportation and handling.
III) To always have enough of everything on hand so there are no stockouts.
IV) To be able to interact with the factory so as to minimize scheduling problems.

A) all the above are objectives
B) I, II and III
C) I, II and IV
D) I, III and IV
E) II, III and IV