Deck 9: Inventory Management

Question 1

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

Answer 1

D

Question 2

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.

Answer 2

D

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

The term ________ refers to the quantity of an item that is purchased from a supplier;the term ________ is used to refer to the size of the batch that is produced using internal processes.

Question 7

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

Question 8

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

Question 9

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.

Question 10

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 11

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

Question 12

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

Question 13

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

Question 14

Setup cost is independent of order size.

Question 15

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

Question 16

One component of the holding cost of inventory is interest.

Question 17

One component of the ordering cost of inventory is shrinkage.

Question 18

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

Question 19

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

Question 20

Which of the following generates pressure to decrease inventories?

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

Question 21

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 22

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

Question 23

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 24

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

Question 25

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 26

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 27

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 28

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

Question 29

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

Question 30

Items sold to a firm's customers are called:

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

Question 31

________ 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 32

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 33

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 34

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 35

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

Question 36

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 37

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 38

What are the components of holding cost?

Question 39

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 40

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 41

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

Question 42

The ________ determines the frequency and quantity to order.

Question 43

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

Question 44

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

Question 45

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

Question 46

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

Question 47

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 48

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

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

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

Question 51

Which of the following does not increase repeatability?

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

Question 52

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 53

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

Question 54

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 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

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 57

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 58

________ are the basic tactics for reducing inventories in supply chains.

Question 59

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

Question 60

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

Question 61

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 62

What are the secondary levers for safety stock inventory?

Question 63

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.

Question 64

________-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 65

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 66

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 67

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

Question 68

ABC analysis is closely related to:

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

Question 69

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 70

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

Question 71

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

Question 72

Table 9.1
Inventory records show the following:

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

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 74

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 75

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

Question 76

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 77

What are the secondary levers for cycle inventory?

Question 78

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 79

What are the secondary levers for pipeline inventory?

Question 80

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