Deck 9: Managing Inventory in the Supply Chain

Question 1

Assuming that total customer demand remains the same, the square-root rule estimates the extent to which aggregate inventory need will change as an organization increases or decreases the number of stocking locations.

Answer 1

True

Question 2

Information technology's impact on inventory has been labeled an exchange of "information for inventory."

Answer 2

True

Question 3

Inventory plays a dual role in organizations. Inventory impacts the cost of goods sold as well as supporting the balance sheet, a new concept only recently receiving attention.

Answer 3

False

Question 4

In comparison with the basic EOQ approach, the fixed interval model does not require close surveillance of inventory levels.

Question 5

Purchase economies and transportation economies are not complementary.

Question 6

MRPII will not allow an organization to integrate financial planning with operations and logistics.

Question 7

EOQ can only be used for "push" inventory.

Question 8

The JIT concept has three underlying elements: zero inventories; short, consistent lead times; and small, frequent replenishment quantities.

Question 9

Batching economies or cycle stocks usually arise from three sources. Which of these is not a source?

A) Procurement
B) Transportation
C) Production
D) Demand

Question 10

The reorder point depends on the orders in-house at that time.

Question 11

ABC analysis uses a single criterion to classify SKUs from most important to least important.

Question 12

Inventory is an asset on the balance sheet and a _____ on the income statement.

A) liability
B) footnote
C) statement
D) variable expense

Question 13

A reason to hold inventory arises when an organization anticipates that an unusual event might occur that will negatively impact its source of supply.

Question 14

The square-root rule is based on a number of reasonable assumptions. Which of the following is not one of these assumptions?

A) Inventory transfers between stocking locations are common practice.
B) Lead times do not vary, and thus inventory centralization is not affected by inbound supply uncertainty.
C) Customer service levels, as measured by inventory availability, are constant.
D) Demand at each location is normally distributed.

Question 15

Storage space costs are not variable.

Question 16

JIT, MRP, and MRP II all incorporate some version of the basic EOQ model into their philosophies.

Question 17

Inventory management is not as important as it once was due to other factors that have come into play.

Question 18

The ABC analysis is based on Pareto's law.

Question 19

"Batching economies" and "cycle stocks" are the same.

Question 20

Ordering cost refers to the expense of placing an order for additional inventory, including the cost or expense of the product itself.

Question 21

A DRP system is usually coupled with a _____ system in an attempt to manage the flow and timing of both inbound materials and outbound finished goods.

A) Kanban
B) VMI/consignment
C) MRP
D) JIT

Question 22

Seasonal stocks are not influenced by:

A) EOQ.
B) weather.
C) transportation.
D) holidays.

Question 23

Discuss capital cost, and include both the hurdle rate and weighted average cost of capital (WACC) in your answer.

Question 24

The fixed order interval EOQ model is best used for SKUs with:

A) variable demand.
B) stable demand.
C) unknown demand.
D) seasonal demand.

Question 25

Especially for wholesalers and retailers involved in the distribution channels for consumer packaged goods, inventory management is a careful balancing act between:

A) supply and demand.
B) controlled supply and variable demand.
C) lower inventory levels and acceptable customer service levels.
D) variable inventory levels and consistent customer service levels.

Question 26

What are push and pull systems? Name at least one inventory management system that is a push or pull system.

Question 27

Discuss how seasonality can affect inventory.

Question 28

Henderson Air manufactures heating and air conditioning systems. Recently, the management team decided to implement a new method of classifying inventory based on two key criteria: value (as measured by the contribution to profit) and risk (as measured by the negative impact of not having the product available when needed). Which classification method is Henderson Air using?

A) ABC
B) Axis model
C) Square-root method
D) Quadrant model

Question 29

Trekker Luggage and Travel Gear needs to manufacture 10,000 suitcases for an upcoming order. Each suitcase requires 4 rivets. Trekker currently has 35,000 rivets in stock. Which of the following is true?

A) Due to dependent demand, Trekker does not have an adequate amount of rivets in stock to complete the order.
B) Due to independent demand, Trekker does not have an adequate amount of rivets in stock to complete the order.
C) Due to dependent demand, Trekker has an adequate amount of rivets in stock to complete the order.
D) Due to independent demand, Trekker has an adequate amount of rivets in stock to complete the order.

Question 30

As Q decreases for EOQ, the cost per order:

A) increases.
B) decreases.
C) stays the same.
D) can't be determined.

Question 31

In the event of a "stockout," one of the things that could happen is:

A) the vendor's plant shuts down.
B) the cost of capital is increased.
C) the SCOR process would come into play.
D) extra shipping costs may be incurred.

Question 32

Capital cost focuses on the cost of capital tied up in _____ and the resulting lost opportunity from investing that capital elsewhere.

A) plants
B) inventory
C) distribution centers
D) WIP

Question 33

Compare and contrast the fixed quantity version of EOQ with the fixed interval version. In which situations would each be used?

Question 34

WIP inventories:

A) are not included on the balance sheet.
B) are associated with manufacturing.
C) are the same as VMI inventories.
D) are not impacted by EOQ.

Question 35

Discuss dependent versus independent demand as it is related to inventory.

Question 36

How can inventory carrying cost be calculated for a specific product? What suggestions would you offer for determining the measure of product value to be used in this calculation?

Question 37

What is vendor-managed inventory (VMI)?