Deck 8: Inventory Management

Question 1

Holding high levels of inventory result in ____ inventory carrying costs and ____ stockout costs.
a. high; high
b. high; low
c. low; high
d. low; low

Answer 1

high; low

Question 2

____ refers to stocks of goods and materials that are maintained for many purposes, the most common being to satisfy normal demand patterns.
a. logistics
b. supply chain management
c. inventory
d. production

Answer 2

inventory

Question 3

____ stock refers to inventory that is held for several reasons, to include seasonal demand, projected price increases, and potential shortages of product.
a. base
b. safety
c. pipeline
d. speculative

Answer 3

speculative

Question 4

Under conditions of certainty, a reorder point is equal to ____.
a. average daily demand times the length of the replenishment cycle
b. safety stock plus an EOQ
c. base stock plus safety stock
d. base stock minus safety stock

Question 5

The economic order quantity (EOQ) deals with calculating the proper order size with respect to ____ costs and ____ costs.
a. ordering; stockout
b. stockout; carrying
c. accounting; carrying
d. carrying; ordering

Question 6

____ stock refers to inventory that is en route between various nodes in a logistics system.
a. base
b. safety
c. speculative
d. cycle
e. none of the above

Question 7

All of the following statements are true, except:
a. the importance of individual carrying costs factors (categories) is generally consistent from product to product
b. inventory carrying costs consist of a number of different components or factors
c. in general, companies prefer to carry less inventory as carrying costs increase
d. all of the above are true
d. in general, inventory carrying costs are expressed in percentage terms

Question 8

Inventory shrinkage ____.
a. is another name for inventory turnover
b. refers to the fact that more items are recorded entering than leaving warehousing facilities
c. refers to situations where the size and/or volume of inventory is decreased over time
d. refers to a technique of stabilizing unit loads by using shrink wrap packaging

Question 9

____ stock is carried to stimulate demand.
a. base
b. psychic
c. speculative
d. attractive
e. none of the above

Question 10

Which of the following situations is likely the most damaging (costly) with respect to a stockout?
a. the customer buys a substitute product that yields a higher profit for the seller
b. the customer buys a substitute product that yields a lower profit for the seller
c. the customer goes to a competitor for a purchase
d. the customer says, "Call me when it's in"

Question 11

____ stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.
a. base
b. pipeline
c. speculative
d. buffer

Question 12

Inventory costs in the United States in the twenty-first century represent approximately ____ of total logistics costs.
a. one-fifth
b. one-fourth
c. one-third
d. one-half

Question 13

____ stock refers to inventory that is needed to satisfy normal demand during the course of an order cycle.
a. base
b. speculative
c. pipeline
d. safety

Question 14

Inventory carrying costs in the United States in the twenty-first century have ranged between ____ and ____ percent.
a. 4; 9
b. 9; 14
c. 14; 19
d. 19; 24

Question 15

The economic order quantity (EOQ) determines ____.
a. the point at which a company should reorder
b. the point at which carrying costs equal ordering costs
c. the point at which the sum of carrying costs and ordering costs is maximized
d. the relevant inventory flow for a particular time period
e. none of the above

Question 16

Which of the following statements is false?
a. with respect to stockouts, a delayed sale is virtually costless to a company because of the customer's brand loyalty
b. the higher the average cost for a stockout, the more inventory (safety stock) that should be held
c. tradeoffs exist between carrying costs and stockout costs
d. stockouts can be more costly than having too many items in stock
e. all of the above are true

Question 17

In the United States, ____has traditionally provided a convenient starting point when estimating the interest charges associated with maintaining inventory.
a. Gross Domestic Product growth
b. Consumer Price Index
c. the prime rate of interest
d. the yield on US Treasury bills

Question 18

Each of the following is a component of inventory carrying cost except:
a. accounting cost
b. storage cost
c. shrinkage cost
d. interest cost
e. all of the above are components

Question 19

Which of the following is not an assumption associated with the basic economic order quantity (EOQ) model?
a. no inventory in transit
b. an infinite planning horizon
c. stockouts are permitted
d. a constant and known replenishment or lead time
e. all are basic assumptions with the basic EOQ model

Question 20

Which of the following is not a component of ordering (order) costs?
a. costs of preparing invoices
b. costs of receiving orders
c. costs of verifying inventory availability
d. costs of conducting a credit check
e. all are components of ordering (order) costs

Question 21

____ items refer to those that are used or distributed together.
a. me-too
b. substitute
c. co-branded
d. complementary

Question 22

Inventory turnover can be calculated by ____.
a. dividing the cost of goods sold by average inventory
b. dividing average inventory by the costs of goods sold
c. multiplying average inventory by 1.5
d. adding beginning and ending inventory and then dividing by two
e. none of the above

Question 23

Which of the following statements about service parts logistics is false?
a. customer expectations for service parts logistics continues to increase
b. some organizations outsource their service parts logistics to companies that specialize in this area
c. service parts logistics creates a variety of potential challenges for logisticians
d. the worldwide economic slowdown of 2008 and 2009 caused a decreased emphasis on service parts logistics
e. all of the above are true

Question 24

Inventory flow diagrams illustrate that safety stock can prevent two problem areas, ____ and ____.
a. decreased rate of demand; longer-than-normal replenishment
b. increased rate of demand; shorter-than-normal replenishment
c. decreased rate of demand; shorter-than-normal replenishment
d. increased rate of demand; longer-than-normal replenishment

Question 25

All of the following are suggestions for dealing with dead stock (inventory), except ____.
a. aggressive marketing
b. donate to charities
c. make to order
d. throw it away
e. all of the above are suggestions

Question 26

Buffer stock is also referred to as cycle stock.

Question 27

Inventories are stocks of goods and materials that are maintained for many purposes.

Question 28

Concerning the EOQ model, if the ordering costs increase by 10% and the product value increases by 10%, then the EOQ will ____.
a. stay unchanged
b. increase
c. decrease
d. it depends on the particular product

Question 29

Which of the following statements about the lean approach and JIT is false?
a. JIT tends to focus on product movement from manufacturer to retailer
b. organizations should give careful consideration before adopting a lean philosophy
c. the lean approach views inventory as waste
d. trucking is an important mode of transportation in JIT systems
e. all of the above are true

Question 30

Dead inventory (dead stock) refers to a product for which there is no sales during a ____ month period.
a. three
b. six
c. twelve
d. twenty-four

Question 31

ABC analysis of inventory ____.
a. applies activity-based costing to managing inventory
b. recognizes that inventories are not of equal value to a firm
c. is synonymous with vendor-managed inventory
d. is an alternative to the EOQ model

Question 32

____ products refer to those that customers view as being able to fill the same need or want as another product.
a. copycat
b. me-too
c. substitute
d. co-branded

Question 33

Inventory carries its greatest costs after value has been added through manufacturing and processing.

Question 34

____ recognizes that all inventories are not of equal value to a firm and thus all inventories should not be managed in the same way.
a. vendor-managed inventory
b. suboptimization
c. marginal analysis
d. ABC analysis of inventory

Question 35

Which of the following is not an example of a lean inventory approach?
a. just-in-time
b. collaborative planning, forecasting, and replenishment
c. efficient consumer response
d. quick response
e. all of the above are lean inventory approaches

Question 36

Which of the following is not a potential benefit to vendor-managed inventory?
a. reduced order errors
b. improved demand forecasts
c. reduced inventories
d. fewer stockouts
e. all are VMI benefits

Question 37

Different organizational functions, such as marketing and production, tend to have similar inventory management objectives.

Question 38

Safety stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.

Question 39

Concerning the EOQ model, if demand or annual usage increases by 10%, then the EOQ will ____.
a. it depends on the particular product
b. increase
c. decrease
d. stay unchanged

Question 40

Under ____, the size and timing of replenishment orders are the responsibility of the manufacturer.
a. quick response
b. supply chain management
c. vendor-managed inventory
d. efficient consumer response

Question 41

The EOQ is the point at which carrying costs equal ordering costs.

Question 42

Inventory tends to be one of the largest assets (in terms of dollar value) on a company's balance sheet.

Question 43

One assumption of the basic EOQ model is a continuous, constant, and known rate of demand.

Question 44

One requirement of a fixed order quantity system is that the inventory must be constantly monitored.

Question 45

The EOQ can only be calculated with respect to the number of units to be ordered.

Question 46

The higher the average cost of a stockout, the more likely a company is going to want to hold some amount of inventory (safety stock) to protect against stockouts.

Question 47

A fixed order quantity system is more susceptible to stockouts than is a fixed order interval system.

Question 48

A reorder point is equal to average daily demand divided by the length of the replenishment cycle.

Question 49

The trade-off that exists between carrying costs and ordering costs is that they respond in opposite ways to the number of orders or size of orders.

Question 50

Inventory flow diagrams graphically depict the demand for, and replenishment of, inventory.

Question 51

Psychic stock is associated with retail stores.

Question 52

In terms of ABC analysis of inventory, no more than 25% of items should be classified as "A's."

Question 53

Marginal analysis recognizes that all inventories should not be managed in the same way.

Question 54

Pipeline stock is inventory that is en route between various fixed facilities in a logistics system.

Question 55

Not having enough items can be as bad as, and sometimes worse than, having too many items.

Question 56

Obsolescence costs are one component of inventory carrying costs.

Question 57

As a general rule, companies prefer to carry less inventory as the carrying cost percentage decreases.

Question 58

Safety stock can prevent against two problem areas: An increased rate of demand and longer-than-normal replenishment.

Question 59

The range of inventory carrying costs in the United States in the twenty-first century has been between 22 and 27 percent.

Question 60

Inventory shrinkage refers to the fact that products lose value through time.

Question 61

Many grocery chains target in-stock rates of 90 percent for individual stores so that sufficient substitutes exist for a customer to purchase a substitute item rather than go to a competing store.

Question 62

A confluence of events, such as increasing global sourcing, suggests that organizations should carefully consider the potential trade-offs before adopting a lean inventory philosophy.

Question 63

Efficient consumer response (ECR) and collaborative planning, forecasting, and replenishment (CPFR) are examples of lean inventory approaches.

Question 64

Lean manufacturing focuses on the elimination of waste.

Question 65

One way of dealing with dead stock (inventory) is for companies to simply throw it away.

Question 66

Vendor-managed inventory can only be applied to consumer, and not industrial, products.

Question 67

Service parts logistics has decreased in importance in recent years.

Question 68

High inventory turnover indicates that a company is taking longer to sell its inventory.

Question 69

Inventory turnover can be calculated by dividing costs of goods sold by average inventory.

Question 70

In vendor-managed inventory, the size and timing of replenishment orders are the responsibility of the manufacturer.

Question 71

One logistical challenge with service parts logistics is that it can be extremely difficult to forecast the demand for the necessary parts.

Question 72

Complementary products can be defined as inventories that can be used or distributed together, such as razor blades and razors.

Question 73

Using the EOQ methods outlined in the chapter, how many kegs of nails should Low order at one time?

Question 74

Dead stock (inventory) refers to product for which there is no sales during a 12-month period.

Question 75

Because of smaller, more frequent orders and closer supplier location, trucking tends to be an important mode of transportation in the just-in-time approach.

Question 76

The number of times that inventory is sold in one year is referred to as average inventory.