Deck 9: Inventory Management

Question 1

When looking at inventory management, the term "lot size" refers to the quantity of an inventory item management either buys from a supplier or manufactures using internal processes.

Answer 1

True

Question 2

Which of the following does not generate pressure to increase inventories?

A) transportation costs
B) backorders and stockouts
C) inventory shrinkage costs
D) quantity discounts

Answer 2

C

Question 3

Setup cost is independent of order size.

Answer 3

True

Question 4

A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later.

Question 5

Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization.

Question 6

Which of the following generates pressure to increase inventories?

A) inventory holding costs
B) ordering costs
C) storage and handling costs
D) taxes and insurance

Question 7

The term lot size signifies:

A) the total production of a single SKU for a one-year period.
B) the physical dimensions of the raw materials used to make a batch of one SKU.
C) the dimensions of the container used to ship an order to any location outside of company property.
D) the number of units of a single item that a company buys from a supplier.

Question 8

A quantity discount is attractive because there is a drop in the price per unit when the order is sufficiently large.

Question 9

One component of the holding cost of inventory is interest.

Question 10

A stockout occurs when an item that is typically stocked is not available to satisfy a demand the moment it occurs.

Question 11

Which of the following does not generate pressure to decrease inventories?

A) taxes and insurance
B) inventory holding costs
C) storage and handling costs
D) ordering costs

Question 12

________ is the opportunity cost of investing in an asset relative to the expected return on assets of similar risk.

Question 13

Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.

Question 14

________ is the planning and controlling of inventories in order to meet the competitive priorities of the organization.

Question 15

Which of the following generates pressure to decrease inventories?

A) inventory shrinkage costs
B) backorders and stockouts
C) transportation costs
D) quantity discounts

Question 16

One component of the ordering cost of inventory is shrinkage.

Question 17

When looking at inventory management, the term "lot size" refers to the physical dimensions of the area where the inventory is stored.

Question 18

The primary reason for keeping inventories low is that inventory represents a temporary monetary investment.

Question 19

The term ________ is used to refer to the quantity of inventory management either buys from a supplier or manufactures using internal processes.

Question 20

Reducing setup costs will increase the pressure to keep large inventories.

Question 21

Inventories needed for the production of services and goods (inputs to a firm's transformation processes) are called:

A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.

Question 22

Scenario 9.1
Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment.
Refer to Scenario 9.1. The net impact on the retailer will be:

A) no net change in average cycle and pipeline inventories.
B) a net average increase in cycle and pipeline inventories of 50 units.
C) a net average decrease in cycle and pipeline inventories of 75 units.
D) a net average decrease in cycle and pipeline inventories of 50 units.

Question 23

An experienced operations manager can tell at a glance whether an item should be classified as safety stock, anticipation inventory, or cycle stock.

Question 24

Although lower inventories and a just-in-time approach receive considerable attention in the business media, some organizations prefer high levels of inventory. Why would they want to hold a large inventory?

Question 25

Items, such as components or assemblies, needed to manufacture a final product are called:

A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.

Question 26

________ is the cost of preparing a purchase order for a supplier or a production order for manufacturing.

Question 27

Scenario 9.2
Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. The lead time from the plant to the wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.
Refer to Scenario 9.2. If the plant reduces its lead time from 4 to 2 weeks and keeps its 600 unit lot size, what is the wholesaler's new total cycle plus pipeline inventories?

A) 300 units
B) 500 units
C) 700 units
D) 200 units

Question 28

Scenario 9.1
Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment.
Refer to Scenario 9.1. With the change in lead time, the pipeline inventory will:

A) decrease by 75 units.
B) increase by 50 units.
C) decrease by 25 units.
D) increase by 25 units.

Question 29

Which of these statements about pipeline inventory is best?

A) Shorter lead times create more pipeline inventory.
B) Changing an item's lot size does not directly affect the average level of the pipeline inventory.
C) Pipeline inventory exists to avoid customer service problems.
D) Pipeline inventory is used to even out volatile fluctuations in supply or demand.

Question 30

Scenario 9.2
Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. The lead time from the plant to the wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.
Refer to Scenario 9.2. What is the total of the wholesaler's current cycle plus pipeline inventories?

A) 300 units
B) 100 units
C) 700 units
D) 400 units

Question 31

A(n) ________ occurs when a customer order cannot be filled as promised or demanded but is filled later.

Question 32

Inventory ________ cost is the variable cost of keeping items on hand, such as storage and handling, taxes, insurance, and shrinkage.

Question 33

Items sold to a firm's customers are called:

A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.

Question 34

What are the components of holding cost?

Question 35

A(n) ________ is an order that cannot be satisfied, resulting in the loss of a sale.

Question 36

Dependent demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other item held in stock.

Question 37

Scenario 9.1
Shipments of Product A from a distribution center to a retailer are made in lots of 350. The retailer's average demand for Product A is 75 units per week. The lead time from distributor to retailer is 3 weeks. The retailer pays for the shipments when they leave the distributor. The distributor has agreed to reduce the lead time to 2 weeks if the retailer will purchase quantities of 400 per shipment instead of 350 units per shipment.
Refer to Scenario 9.1. With the change in purchased quantities, the average cycle inventory will:

A) decrease by 75 units.
B) increase by 50 units.
C) decrease by 25 units.
D) increase by 25 units.

Question 38

Independent-demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other items held in stock.

Question 39

Scenario 9.2
Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. The lead time from the plant to the wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.
Refer to Scenario 9.2. If the plant reduces its shipment lot size from 600 to 400 units and keeps its 4 week lead time, what is the wholesaler's new total cycle plus pipeline inventories?

A) 600 units
B) 300 units
C) 500 units
D) 400 units

Question 40

________ occurs when inventory is stolen by employees and customers or when the inventory cannot be sold at full value owing to model changes or low demand.

Question 41

Scenario 9.2
Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. The lead time from the plant to the wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.
Refer to Scenario 9.2. Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 400 units?

A) The plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks
B) The plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks
C) The plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks
D) The plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks

Question 42

Which of the following does not increase repeatability?

A) parts standardization
B) customization
C) group technology
D) flexible automation

Question 43

What are the three types of inventory? For which inventory type is a stockout most critical?

Question 44

The primary lever to reduce anticipation inventory is to place orders closer to the time when they must be received.

Question 45

Which of the following is not a lever for reducing cycle inventories?

A) place purchased item orders at fixed intervals
B) reduce lot sizes for items moving in the supply chain
C) streamline methods for placing orders and making machine set ups
D) increase repeatability to eliminate the need for changeovers

Question 46

A ________ lever is one that must be activated if inventory is to be reduced.

Question 47

________ inventory is the inventory moving from point to point in the materials flow system.

Question 48

________ consists of items such as components or assemblies needed for a final product in manufacturing.

Question 49

Scenario 9.2
Shipments of Product X from a plant to a wholesaler are made in lots of 600. The wholesaler's average demand for X is 100 units per week. The lead time from the plant to the wholesaler is 4 weeks. The wholesaler pays for the shipments when they leave the plant.
Refer to Scenario 9.2. Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 550 units?

A) The plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks
B) The plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks
C) The plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks
D) The plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks

Question 50

The ________ determines the frequency and quantity to order.

Question 51

________ inventory is the portion of total inventory that varies directly with lot size.

Question 52

The manager at Crystal Mountain Ski Resort lowers the price of lift tickets to $2 during July and August, a traditionally slow period for skiing. This secondary lever impacts:

A) safety stock inventory.
B) cycle inventory.
C) pipeline inventory.
D) anticipation inventory.

Question 53

As safety stock increases, the holding cost of that inventory item ________.

Question 54

What are the types of inventory from the perspective of how it is created? Where is each type most likely to exist in the supply chain?

Question 55

When considering dependent / independent demand, in the example of tires and automobiles, the original equipment tires represent ________-demand items, while automobiles represent a(n) ________-demand item.

Question 56

________ inventory is the surplus inventory that a company holds to protect against uncertainties in demand, lead-time, and supply.

Question 57

Repeatability is an undesirable feature of some orders because they must be repeated until the order is filled correctly.

Question 58

________ are inventories needed for the production of goods and services; they are considered to be the inputs to the transformation process.

Question 59

One of the secondary levers for reducing pipeline inventory is to:

A) offer seasonal pricing plans.
B) increase capacity cushions.
C) accept only large orders.
D) select more responsive suppliers.

Question 60

________ are the basic tactics for reducing cycle, safety stock, anticipation, and pipeline inventories in supply chains.

Question 61

Table 9.1
Inventory records show the following:

What is generally True about class C SKUs in ABC analysis? They represent about:

A) 20 percent of all SKUs.
B) 30 percent of all SKUs.
C) 5 percent of the dollar usage.
D) 50 percent of the dollar usage.

Question 62

What are the secondary levers for pipeline inventory?

Question 63

In ABC analysis, class ________ SKUs represent the smallest number of SKUs but the greatest dollar usage.

Question 64

A stock-keeping unit (SKU) is a specially designed container for holding a specific amount of an inventory item somewhere along the supply chain.

Question 65

Table 9.1
Inventory records show the following:

What is generally True about class B SKUs in ABC analysis? They represent about:

A) 20 percent of all SKUs and about 80 percent of the dollar usage.
B) 80 percent of all SKUs and about 20 percent of the dollar usage.
C) 30 percent of all SKUs and about 15 percent of the dollar usage.
D) 50 percent of all SKUs and about 95 percent of the dollar usage.

Question 66

A stock-keeping unit (SKU) is an individual item or product that has an identifying code and is held in inventory somewhere along the supply chain.

Question 67

ABC analysis is a process for categorizing SKUs according to dollar usage so that managers can focus on items with the highest dollar value.

Question 68

Cycle counting is an inventory-control method whereby storeroom personnel physically count a small percent of the total number of items each day.

Question 69

In an ABC analysis, class ________ SKUs, which typically make up about ________% of the SKUs, account for about 80% of the dollar usage.

Question 70

Table 9.1
Inventory records show the following:

What is generally True about class C SKUs in ABC analysis? They represent about:

A) 20 percent of all SKUs.
B) 50 percent of all SKUs.
C) 15 percent of the dollar usage.
D) 50 percent of the dollar usage.

Question 71

What are the secondary levers for safety stock inventory?

Question 72

Table 9.1
Inventory records show the following:

In the context of an ABC inventory classification, use Table 9.1 to ascertain the veracity of this statement. Items in series U are the most C-like of all inventory SKUs.

Question 73

Table 9.1
Inventory records show the following:

Use Table 9.1 to identify the best statement.

A) Items in series V and Q fall in the same category of an ABC analysis.
B) Items in series W and S fall in the same category of an ABC analysis.
C) Items in series W and Q fall in the same category of an ABC analysis.
D) Items in series S and V should be in the Class B of an ABC analysis.

Question 74

What are the secondary levers for cycle inventory?

Question 75

________-demand items are items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock.

Question 76

ABC analysis is closely related to:

A) three-bin analysis.
B) EOQ analysis.
C) repeatability analysis.
D) Pareto analysis.

Question 77

Table 9.1
Inventory records show the following:

What is generally True about class A SKUs in ABC analysis? They represent about:

A) 50 percent of all SKUs.
B) 80 percent of all SKUs.
C) 20 percent of the dollar usage.
D) 80 percent of the dollar usage.

Question 78

What are the key issues when implementing and operating an inventory control system?

Question 79

When using ABC analysis, class C SKUs should be reviewed frequently.

Question 80

Table 9.1
Inventory records show the following:

What is generally True about class A SKUs in ABC analysis? They represent about:

A) 20 percent of all SKUs.
B) 30 percent of all SKUs.
C) 20 percent of the dollar usage.
D) 50 percent of the dollar usage.