Question 1

The goal of the theory of constraints is to make money in the future by managing constraints.

Accepted Answer

False

Question 2

JIT uses long-term contracts, continuous refilling, and electronic data interchanges to reduce or eliminate ordering costs.

Accepted Answer

JIT (Just-In-Time) is a system that aims to reduce or eliminate inventory costs by receiving goods only when they are needed in the production process. It uses long-term contracts with suppliers to ensure a continuous supply of materials, and electronic data interchange (EDI) to streamline ordering and tracking. By doing so, it reduces ordering costs and promotes efficiency in the supply chain.

Question 3

When a product mix does not utilize fully its constraints, they are called loose constraints, when used completely, they are called binding constraints.

Accepted Answer

This statement is true. Loose constraints refer to constraints within a product mix that are not being fully utilized, whereas binding constraints are constraints that are being fully utilized.

Question 4

The theory of constraints focuses on two operational measures of system performance: inventory expenses and operating expenses.

Accepted Answer

The Theory of Constraints focuses on three operational measures: throughput, inventory, and operating expenses, not just inventory expenses and operating expenses.

Question 5

Reducing ordering and setup costs interfere with the reduction of inventory costs.

Accepted Answer

Reducing ordering and setup costs actually helps in reducing inventory costs because it allows for more efficient ordering and production processes, minimizing the need to hold large amounts of inventory.

Question 6

Just-in-case inventory management is a traditional inventory model based on a wait-until-needed demand.

Accepted Answer

Just-in-case inventory management is actually the opposite of traditional inventory management. It is based on the idea of having inventory available before it is needed, in case there is unexpected demand or supply chain disruptions. This approach is also known as safety stock inventory management.

Question 7

Ordering costs are costs of placing and receiving an order and setup costs are the costs of getting equipment and facilities to produce products.

Accepted Answer

Ordering costs are associated with the process of ordering goods or materials, while setup costs are related to the preparation and adjustment of equipment, tools, and facilities for production.

Question 8

The major binding constraint in an organization is defined as the drummer, which sets the production rate for the whole plant.

Accepted Answer

The term "drum" is used in the Theory of Constraints to refer to the resource in the production process that has the lowest capacity and therefore sets the maximum production rate for the entire system. This is known as the drum-buffer-rope system and is a key concept in operations management.

Question 9

Throughput is the rate at which an organization generates money through sales.

Accepted Answer

Throughput is the rate at which an organization generates money through sales. It is a key concept in the theory of constraints and focuses on maximizing the flow of products or services through a system to increase revenue.

Question 10

External constraints are imposed on a firm from within and internal constraints are imposed electronically.

Accepted Answer

External constraints are imposed on a firm from sources outside of the organization such as government regulations, industry standards, and market competition. Internal constraints refer to limitations and obstacles that arise from within the organization itself such as budget constraints, resource deficiencies, and organizational structure. Neither external nor internal constraints are imposed electronically.

Question 11

When only one binding constraint exists, the product with the smallest contribution margin will be focused on.

Accepted Answer

When only one binding constraint exists, the focus will be on the product with the highest contribution margin per unit of the constrained resource, not necessarily the product with the smallest contribution margin.

Question 12

Firms face limited resources and limited demand for their products called constraints.

Accepted Answer

Firms have finite resources and there is only a finite demand for their products due to market conditions, which are often constrained by factors such as consumer preferences, competition, and economic conditions. These constraints can limit a firm's ability to expand and achieve its objectives.

Question 13

JIT is a manufacturing approach focused on present demand rather than anticipated demand.

Accepted Answer

JIT (Just-In-Time) is a manufacturing approach that emphasizes producing items in response to present demand rather than relying on forecasts and a large inventory of finished goods. This approach aims to reduce waste, improve efficiency, and increase flexibility in production.

Question 14

The Kanban system is an information system which ensures that parts or materials are available when needed.

Accepted Answer

The statement is true. The Kanban system is a visual control method that provides an effective way to manage and control the flow of materials and information through the production process. It ensures that parts or materials are available when needed by signaling when and how much to produce or reorder, based on actual usage and inventory levels.

Question 15

Effective inventory management conserves investment capital and facilitates response to customer demands.

Accepted Answer

Effective inventory management helps in keeping optimal inventory levels, minimizing excess inventory and stockouts, which reduces unnecessary investment in inventory. It also enables quick response to customer demands by ensuring that the right products are available at the right time, leading to greater customer satisfaction and increased sales.

Question 16

The theory of constraints identifies a company's constraints and exploits them.

Accepted Answer

The theory of constraints (TOC) is a management philosophy that focuses on identifying the constraints or bottlenecks that limit a company's performance and then finding ways to exploit them to improve overall productivity and efficiency. Therefore, the statement is true.

Question 17

JIT inventory management offers alternative solutions that require higher inventories.

Accepted Answer

JIT (Just-In-Time) is a philosophy of inventory management that emphasizes keeping inventory levels as low as possible, ideally zero. This helps businesses reduce waste and save costs. Hence, JIT does not require higher inventories.

Question 18

Effective inventory management does not consider inventory-related costs.

Accepted Answer

Effective inventory management takes into account the inventory-related costs such as holding costs, ordering costs, and shortage costs. It seeks to strike a balance between inventory levels and costs, ensuring that there is enough inventory to meet demand while minimizing costs.

Question 19

Competitive pressures have led many companies to favor the JIT inventory approach.

Accepted Answer

The competitive pressures have led many companies to adopt the JIT (Just-In-Time) inventory approach as it enables them to reduce their inventory costs and improve their efficiency in production and distribution.

Question 20

With multiple internal binding constraints, the optimal mix is determined by a graphical approach or the simplex method.

Accepted Answer

When there are multiple internal binding constraints, the optimal mix can be determined using either a graphical approach or the simplex method in linear programming.

Quiz 20: Inventory Management: Economic Order Quantity, Jit, and the Theory of Constraints