Deck 11: Inventory: Managing to Meet Demand

Question 1

Decoupling with inventory can provide an increase in net sales that results from enhanced reliability and response time.

Answer 1

True

Question 2

Ordering costs are generally viewed as being a function of the average value of inventory.

Answer 2

False

Question 3

Continuous replenishment in retailing is analogous to just-in-time delivery in manufacturing.

Answer 3

True

Question 4

In general, dependent demand inventories are inventories whose demand comes directly from the market (they are dependent on the market for demand)

Question 5

Independent demand is, by definition, uncertain demand.

Question 6

The EOQ approach to determining order quantity has been criticized for deflating order quantities.

Question 7

Fixed quantity, variable interval inventory models are sometimes referred to as periodic review models.

Question 8

In MRP, the gross requirement for the components comes directly from the planned order release from the level above.

Question 9

In ABC classification, the relative importance of inventory items is generally linked to demand or dollar usage, but could also be linked to a particular customer, storage costs, etc.

Question 10

Which of the following is not generally considered part of inventory carrying cost?

A) Insurance costs
B) Storage costs
C) Facility costs
D) Order costs
E) None of the above

Question 11

Which of the following statements is not true about excess inventory?

A) Excess inventory can increase the time to market for a new product by forcing a delay in its introduction.
B) Excess inventory increases the cash-to-cash cycle.
C) Excess inventory can have a negative effect on product quality
D) Excess inventory decreases feedback delay

Question 12

Maintenance, repair, and operating inventory can be best classified as:

A) Dependent demand inventory
B) Derived demand inventory
C) Independent demand inventory
D) Raw materials inventory
E) None of the above

Question 13

Which of the following statements is true of fixed quantity, variable interval inventory systems?

A) Under this system, the order quantity is different each time an order is placed
B) A common implementation of this system is known as the fixed quantity reorder point model
C) This system is also referred to as a periodic review system
D) Both A and B
E) A, B, and C

Question 14

Order costs are most similar to which of the following?

A) Shrinkage costs
B) Carrying costs
C) Changeover costs
D) Stockout costs
E) None of the above

Question 15

An example of independent demand inventory would be:

A) Raw materials for a manufacturer
B) Component parts for a manufacturer
C) Manufacturing sub-assemblies
D) A manufacturer's finished products

Question 16

Which of the following is true about the economic order quantity model?

A) At the economic order quantity, the carrying costs are minimized.
B) At the economic order quantity, the order costs are minimized.
C) At the economic order quantity, the total cost curve is very steep.
D) At the economic order quantity the sum of carrying and order costs is minimized.

Question 17

Which of the following statements is true about the EOQ model?

A) EOQ techniques identify the order quantity that will minimize the costs associated with the order size.
B) EOQ has been criticized for deflating order quantities.
C) The EOQ includes the costs of lost flexibility, increased quality feedback, and increased lead times in estimating holding costs.
D) The EOQ formula includes the purchase price.

Question 18

The primary difference between the basic EOQ model and the EOQ with quantity discounts model is that

A) The basic EOQ model attempts to minimize costs, but the EOQ with quantity discounts model does not.
B) In the EOQ with quantity discounts model, the total cost equation includes the price per unit.
C) In the EOQ with quantity discounts model, carrying cost is not considered.
D) In the EOQ with quantity discounts model, order cost is not considered.

Question 19

The purpose of safety stock in a reorder point system is

A) To help the system cope with unexpected demand
B) To bring the service level to above 90%
C) To satisfy the dependent demand component of customer demand
D) To increase the service level to above 50%

Question 20

If the order quantity is fixed, and demand varies

A) Stockouts will occur.
B) A higher safety stock must be used.
C) The order interval must vary.
D) A periodic review system must be used.

Question 21

On average, the safety stock in a reorder point system

A) Is not used
B) Is used at the same percentage as the service level says
C) Is used only for surprise demands
D) Is used during every order replenishment

Question 22

Which of the following statement is not true in regards to periodic review system?

A) Periodic review system is also referred to as fixed interval, variable quantity system.
B) The order quantity could potentially be different for each order.
C) Just like in the ROP model, there is a need to satisfy demand during the replenishment lead-time.
D) The demand during the order interval and the demand during the replenishment lead-time are certain.
E) The inventory ordered in this system must satisfy demand during the order interval

Question 23

In a fixed interval inventory system, the target inventory level consists of

A) The average demand during the lead time
B) The average demand during the lead time and order interval
C) The average demand during the lead time and order interval, plus a safety stock
D) The economic order quantity

Question 24

Inventory "in transit" is often referred to as:

A) Work-in-process inventory
B) Pipeline inventory
C) Transfer batches
D) MRO inventory

Question 25

Which of the following is not an information input to MRP calculations?

A) Master production schedule
B) Net requirements
C) The bill of material
D) The inventory master file
E) All of the above are inputs

Question 26

Which of the following is not part of the MRP record?

A) Gross requirements
B) On hand inventory
C) Net requirements
D) Planned order release
E) Demand forecasts

Question 27

Which of the following statements is consistent with MRP?

A) MRP is frequently used to determine orders for manufactured components as well as purchased components and raw materials
B) MRP consists of determining the number of orders, but not the timing of the orders
C) Ending on hand inventory is computed by subtracting beginning on hand inventory from gross requirements.
D) The gross requirements for component parts is equal to the gross requirements of the finished product.
E) None of the above

Question 28

Fixed quantity lot size policies in MRP:

A) Help reduce inventory levels
B) Increase the capacity required at work stations
C) Increase the average level of inventory
D) Add to the changeovers required for batches

Question 29

A measure of inventory that considers the value of inventory and the time until it will be sold is known as

A) Inventory Turnover
B) Changeover cost
C) Dollar Days
D) None of the above

Question 30

When computing the EOQ with quantity discounts, which of the following is true

A) If the basic EOQ falls in the cheapest price range, the basic EOQ is the optimal order quantity.
B) The purchase price must be ignored.
C) All price ranges with higher prices than the range the basic EOQ falls in must be evaluated.
D) The optimal quantity will be at the highest allowable quantity in a price range.

Question 31

Compute the economic order quantity for this scenario: Annual demand = 288, Order cost = $17 per order, Carrying cost = $33.88 per item per year. Select the alternative that comes closest to your answer.

A) 144.51
B) 17
C) 289.02
D) 12.02

Question 32

Skipper's Bait Shop currently has 161 dozen worms on hand. Average daily demand is 23 dozen. What is Skipper's current days-of-supply?

A) 23
B) 7
C) 21
D) None of the above

Question 33

The demand for a particular sweater at Ann's Closet is 8 units per week, with a weekly standard deviation of 3. Ann wishes to use a reorder point that provides a 99% service level. (Zp=.99 = 2.333). The replenishment lead time is 1 week. What reorder point should she use?

A) 8
B) 10.333, round up to 11
C) 15
D) 13.333, round up to 14

Question 34

_______ means that the inventory serves to break a direct dependency that one part of the supply chain may have on another.

Question 35

______ costs and ______ costs of inventory are inversely related to each other.

Question 36

The finished goods inventory ______ the shipping and delivery systems from the actual production of the product.

Question 37

Demand for dependent -demand is _________.

Question 38

A common implementation of the _____ ______, _______ _______ system is known as a fixed quantity reorder point model.

Question 39

In addition to the ______ and ______ costs being components of the total costs, the quantity discount model also looks at the ______ ______.

Question 40

______ _____, ______ _____ system is also referred to as a periodic review system.

Question 41

MRP logic is frequently used to determine orders for ______ components as well as ______ components and ____ _______.

Question 42

Releasing an order exactly equal to the net requirement is known as ______ ordering.

Question 43

A primitive form of a reorder point is known as _____ system.

Question 44

Match these items.

-Dependent demand inventory management system

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 45

Match these items.

-Pipeline inventory

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 46

Match these items.

-Backward scheduling

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 47

Match these items.

-Carrying costs

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 48

Match these items.

-Prioritizing inventory

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 49

Match these items.

-Level production

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 50

Match these items.

-Lot-for-lot ordering

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 51

Match these items.

-Independent demand

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 52

Match these items.

-Continuous replenishment

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 53

Match these items.

-Fixed quantity, variable interval system

A) Inventory used to smooth demand's load on resources
B) Maintenance, repairs and operating inventory
C) Similar to JIT approach, only in retailing
D) Reorder point model
E) Order size is equal to net requirement
F) Includes the opportunity cost of dollars invested
G) Used in MRP to time the planned order
H) Inventory transported in trucks
I) MRP system
J) ABC analysis

Question 54

An Italian restaurant uses an average of 50 jars of a special spaghetti sauce each week. Weekly usage of spaghetti sauce has a standard deviation of 3 jars. The manager is willing to accept no more than a 10 percent risk of stockout during lead time, which is three weeks. Assume the distribution of usage is normal. Determine the ROP.
D = 50 jars per week LT = 3 weeks
sd = 3 jars per week Service level = 90%

Question 55

Using the information given below and lot for lot ordering, develop a complete MRP material plan.

It takes one unit of B and two units of C to make one unit of end product
A. At the beginning of time period 1, the following information is available:
$\begin{array}{ccc} \text {Item ID }& \text {Quantity on Hand }&\text { Lead Time} \\\hline \text {A} & 100 & 1 \\\text {B} & 120 & 2 \\\text {C} & 180 & 1 \\\hline\end{array}$
The gross requirements of item A are 250 units for period 4 and 250 units for period 5.

Question 56

Assume that you are a manager of ABC, Inc. You have just received an order of 40 units of tables, which are to be delivered at the start of week 5. Using the information given below, determine the quantity and timing for orders of subassembly E.

$\begin{array}{rccl} \text {Item} &\text { LT }&\text { On Hand }&\text { Components } \\\text {Tables} & 1 & 20 &\mathrm{~A}(2), \mathrm{B}(3), \mathrm{C}(1) \\\text {A }& 2 & 12 & \mathrm{E}(3), \mathrm{D}(1) \\\text {B} & 1 & 10 & \mathrm{D}(1), \mathrm{F}(1) \\\text {C} & 2 & 15 &\mathrm{D}(2) \\\text {D} & 1 & 10 & \\\text {E} & 1 & 30 & \\\text {F} & 2 & 20 &\end{array}$