Question 1

WIP is incomplete - it has not yet been transformed to a saleable finished good.

Accepted Answer

WIP or work in progress refers to goods that are in the process of being manufactured or produced but are not yet completed, meaning that they are not yet in a saleable or sellable form. Therefore, WIP is incomplete and not a finished good that can be sold.

Question 2

Suppliers seldom offer quantity discounts to encourage larger orders from purchasers.

Accepted Answer

This statement is false. Suppliers often offer quantity discounts as an incentive for purchasers to place larger orders. This can benefit both the supplier, who can increase sales volume, and the purchaser, who may receive a lower price per unit.

Question 3

The True cost of MRO inventory often goes unnoticed because firms fail to track these items with the same intensity as production inventory.

Accepted Answer

MRO (Maintenance, Repair, and Operating) inventory refers to items used in the maintenance, repair, and upkeep of production equipment, facilities, and buildings. These items are crucial for the smooth functioning of operations, but their true cost often goes unnoticed as firms do not track them with the same intensity as production inventory. This can result in stockouts, emergency purchases, and excess inventory, leading to increased costs and inefficiencies. Therefore, it is essential to track MRO inventory closely and optimize its management to improve overall operational efficiency and reduce costs.

Question 4

When firms produce goods in anticipation of future customer orders, they are operating in a just-in-time environment.

Accepted Answer

Just-in-time (JIT) is a manufacturing philosophy where goods are produced only when they are needed, rather than being produced in advance and stored until they are needed. Therefore, firms operating in a JIT environment do not produce goods in anticipation of future customer orders.

Question 5

It is often difficult to quantify the total costs associated with ordering and carrying physical inventory.

Accepted Answer

There are many hidden costs associated with physical inventory, such as storage costs, handling and transportation costs, obsolescence and shrinkage costs, and the costs of managing and tracking inventory. These costs can be challenging to accurately measure and can significantly impact a company's overall profitability.

Question 6

Carrying costs do not vary with the level of inventory, which makes these costs fixed.

Accepted Answer

Carrying costs can vary with the level of inventory because they include expenses such as storage costs, insurance, and taxes, which can increase as inventory levels rise.

Question 7

Even in an era of just-in-time production, almost all firms hold some level of preproduction inventory.

Accepted Answer

While just-in-time production aims to minimize inventory levels, it is still common for firms to hold some level of preproduction inventory for various reasons such as ensuring the availability of key materials and components, reducing lead times, and managing supply chain disruptions.

Question 8

According to Shook, lean is a philosophy that seeks to shorten the time between when the customer order and the shipment to the customer by eliminating waste.

Accepted Answer

This is an accurate description of the lean philosophy.

Question 9

Anything less than perfect quality leads to waste.

Accepted Answer

When the quality of a product or service is not up to the mark, it may result in a reduction in customer satisfaction, increased costs due to rework or the need to replace defective products, and loss of business opportunities. In such cases, resources such as time, money, and materials may be wasted. Therefore, anything less than perfect quality may lead to waste.

Question 10

The most basic and the easiest inventory-related cost to quantify and track is unit cost.

Accepted Answer

Unit cost is simply the cost of each individual item in inventory and can be easily calculated and tracked.

Question 11

Unnecessary inventory usually results from one thing: uncertainty.

Accepted Answer

When businesses are uncertain about customer demand, delivery times or supplier performance, they tend to overstock inventory as a means of avoiding stockouts. This can lead to unnecessary inventory, as the actual customer demand may be lower than expected or the delivery times may be faster than anticipated.

Question 12

A higher-than-anticipated finished-goods inventory level may mean that a increase in customer demand is occurring.

Accepted Answer

A higher-than-anticipated finished-goods inventory level typically indicates that customer demand is lower than expected, resulting in excess inventory.

Question 13

It is harder to increase a material release by 10 percent or carry safety stock to cover supplier quality problems than to correct the root cause of a problem.

Accepted Answer

The answer of It is harder to increase a material...

Question 14

Ordering costs are a composite of the costs associated with the release of a material order.

Accepted Answer

Ordering costs include costs associated with preparing and releasing a purchase order, such as processing paperwork, communication costs, and any other costs related to initiating a purchase order.

Question 15

In a pull system, an upstream work center or operation will create output regardless whether a downstream center directly requests that output.

Accepted Answer

In a pull system, an upstream work center or operation produces output only in response to a request from a downstream center, aiming to reduce overproduction and align closely with actual demand.

Question 16

If WIP builds up at a workstation, a scheduler should not have to reroute the flow of material to another work center.

Accepted Answer

If WIP builds up at a workstation, it may be necessary for a scheduler to reroute the flow of material to another work center to avoid delays or bottlenecks in the production process.

Question 17

Most cost accounting systems are capable of identifying and assigning the True costs related to maintaining physical inventory. ​

Accepted Answer

Most cost accounting systems struggle to accurately assign all true costs related to maintaining physical inventory due to complexities like indirect costs, overheads, and inefficiencies.

Question 18

Production inventory consumes a minor portion of inventory investment.

Accepted Answer

Production inventory often represents a significant portion of a company's inventory investment, as it includes raw materials, work-in-process, and finished goods necessary for production.

Question 19

Supply chains are insensitive to changes in markets, including changes in the availability of material supply as well as price changes.

Accepted Answer

Supply chains are designed to be responsive to changes in markets, including changes in material supply and price. This responsiveness is achieved through strategies such as inventory management, supplier relationships, and production planning.

Question 20

From the financial accounting perspective, inventory has historically been considered a current asset.

Accepted Answer

Inventory is considered a current asset because it is expected to be sold or used up within one year or within the operating cycle of a business.

Quiz 16: Lean Supply Chain Management