Deck 8: Managing Inventory

Question 1

Inventory is only products that are made and stored.

Answer 1

False

Question 2

Inventory is a product or service that we could make or provide after the customer asks for it, but we choose to make and store now.

Answer 2

True

Question 3

Raw materials such as steel and car parts in an auto plant waiting to be turned into cars are inventory, but semi-finished cars are not inventory.

Answer 3

False

Question 4

The help or FAQ section of any website can be considered as service inventory.

Question 5

Businesses carry inventory because of the certainty of demand.

Question 6

The need for inventory lessens as the uncertainty in future demand, prices, and product availability diminishes.

Question 7

Inventory management is a data-driven approach to improving product availability without other concerns.

Question 8

Effective inventory management targets reducing inventory levels through the application of inventory models.

Question 9

The goal of inventory management, in most cases, is to maximize revenues by avoiding or minimizing stock-outs.

Question 10

Inventory management making data driven-decisions on what is to be stored, how much is to be stored, and when to replenish inventory stock.

Question 11

Physical inventory generally exists in two forms: raw materials and finished goods.

Question 12

Work-in-process inventory is inventory in various stages of completion and includes components and subassemblies.

Question 13

Inventory can also be described in terms of how it has been acquired: cyclically or annually.

Question 14

Phantom inventory is inventory that exists in the mind of the customer but not in the store.

Question 15

Technology such as an RFID (radio frequency identification device) provides a way to query and track the physical location of inventory.

Question 16

UPS codes are standard codes that are provided by the manufacturer of the product.

Question 17

Inventory management is important because it can contribute substantially to corporate performance and profits.

Question 18

Increasing the inventory turnover ratio increases revenues.

Question 19

Higher inventory turnover will lead to lower inventory levels and cash savings.

Question 20

Inventory decisions only affect accounting and operations functions in an organization.

Question 21

Cycle counting of inventory calls for counting the number of inventory cycles in a year.

Question 22

An increase in inventory turnover is bad news for the manufacturer or retailer.

Question 23

Three primary metrics of inventory performance measures are the average aggregate inventory, the average cycle service level (CSL), and the average fill rate.

Question 24

The average fill rate is a measure of how much we carry on average, for any given day, over a specific time period.

Question 25

As inventory turnover increases, the costs of placing repeated orders to replenish inventory increase.

Question 26

Higher levels of inventory would lead to higher CSLs and fill rates.

Question 27

Depreciation of capital equipment is a major contributor to inventory holding cost.

Question 28

Holding inventory is an important strategy to decrease waste and improve motivation.

Question 29

Indirect costs of holding inventory include risk of product obsolescence, stifling of innovation, and clutter and disorganization.

Question 30

Fixed costs and variable costs are direct costs of holding inventory.

Question 31

ABC analysis classifies inventory items into three groups, usually based on total dollar sales.

Question 32

In ABC analysis, C category items are most closely monitored and have the most accurate record keeping and easy-to-access locations.

Question 33

FSN and VED are two alternate methods of analyzing the importance of various inventory items.

Question 34

Lot-for-lot (LFL) and flat ordering are two inventory order size recommendation policies.

Question 35

The EOQ (economic order quantity) model results in a variable order quantity because it considers the cost of placing orders and the cost of carrying inventory.

Question 36

The EOQ model recommends a maximum order quantity that minimizes the ordering costs.

Question 37

The maximum point of the total inventory cost curve is where the EOQ value occurs.

Question 38

The traditional EOQ model assumes known and stable holding and ordering costs and variable demand.

Question 39

The availability of substitute products lowers the cost of stock-outs.

Question 40

High stock-out costs relative to holding costs should lead to recommendations for larger orders.

Question 41

The ROP approach works best for A category items (in ABC analysis) and for vital (VED) items where stock-outs can lead to serious losses in revenues or catastrophic consequences.

Question 42

The ROP (reorder point) model is also known as the continuous review system, and it is used to determine when to place orders.

Question 43

The periodic review model works best for A category items (in ABC analysis) because those items tend to move the fastest.

Question 44

The just-in-time (JIT) philosophy calls for placing orders or manufacturing at the time of need, with the objective of minimizing total inventory costs.

Question 45

Inventory models have to be consistent with the operational realities of capital and resource constraints, for example, in order to realize practical application.

Question 46

JIT run supply lines are especially vulnerable to disruptions.

Question 47

Technologies such as RFID (radio frequency identification devices) are making inventory management more complicated and inaccurate.

Question 48

Sustainability in inventory management is not feasible because every business needs some amount of inventory.

Question 49

Which of the following is not one of the three main types of inventory?

A) raw material inventory
B) work-in-process inventory
C) finished goods
D) All of these are main types of inventory.

Question 50

Which of the following is a function of inventory?

A) to provide a stock of goods that will provide a selection for customers
B) to hedge against inflation
C) uncertainty about future demand
D) all of the above

Question 51

Which of the following is not true of inventory management?

A) Inventory management is a data-driven approach to making intelligent cost and customer service driven decisions.
B) The goal, in most cases, is to generate revenue by minimizing stock-outs while keeping costs at a reasonable level.
C) If Jimmy became unavailable all of a sudden, the business has no inventory management system.
D) Smaller-sized operations are especially vulnerable to inventory risks.

Question 52

Perishable inventory requires

A) heating and newspapers
B) well-designed and highly accurate forecasting
C) entities that can be converted, digitalized, and stored
D) none of the above

Question 53

Phantom inventory is created when

A) Actual physical stock is zero because of RFID technologies.
B) Physical stock does not match computer stock.
C) Physical stock is greater than computer stock.
D) All of the above cause phantom inventory.

Question 54

Which of the following is not an inventory performance measure?

A) average days of inventory turnover
B) average aggregate inventory
C) average cycle service level
D) All of the above are inventory performance measures.

Question 55

Which of the following statements about ABC analysis is false?

A) ABC analysis is based on the presumption that all inventory items must be tightly controlled.
B) ABC analysis is based on the well-known Pareto principle.
C) In ABC analysis, C category items have minimal monitoring and wider latitude in record keeping accuracy.
D) All of the above statements are true.

Question 56

ABC analysis classifies on-hand inventory into three categories based upon the

A) unit price
B) total dollar sales of an item
C) number of units on hand
D) rate of turnover

Question 57

All of the following are inventory classification systems except

A) FSN
B) VED
C) SKU
D) ABC

Question 58

Cycle counting

A) is used to determine average cycle service level
B) is used to identify shelves needing repair
C) has a lower tolerance level for slower-moving items
D) follows a schedule such that the quantity of every SKU in inventory is counted at least once a year

Question 59

Which of the following is not a direct financial cost of inventory?

A) cost of utilities
B) opportunity cost of capital locked up in inventory
C) interest paid on capital
D) All of the above are direct financial costs of inventory.

Question 60

XYZ Computing has been trying to reduce their inventory holding costs. Which of the following practices would not help them achieve this goal?

A) de-cluttering their warehouse so as to have better inventory accountability
B) ordering a larger number of the hottest selling computers
C) using RFID chips to track the movement of inventory
D) none of the above will help

Question 61

The typical inventory model is concerned with answering the two most basic questions, which are

A) when to buy and the total cost of ordering
B) how much to buy and the cycle service level
C) how much to buy and when to buy
D) the total ordering cost and the total holding cost

Question 62

Which of the following is not an assumption of the traditional economic order quantity (EOQ) model?

A) Holding and ordering costs are stable and known.
B) Demand is constant and known.
C) Supply lead time is constant and known.
D) Quantity discounts are possible.

Question 63

The objective of the basic economic order quantity model is to

A) minimize the total of the holding and ordering costs
B) maximize the order quantity to prevent stock-outs
C) minimize the number of orders placed
D) calculate the reorder point to avoid shortages

Question 64

In the basic EOQ model, if the annual demand increases by nine times and all other values remain constant, the EOQ will

A) be difficult to determine without more information
B) increase by three times
C) either increase or decrease
D) decrease by one-third of the previous EOQ

Question 65

In the basic EOQ model, if D = 5,000 per year, S = $100, and H = $1 per unit per year, then the economic order quantity is

A) 707
B) 50
C) 1,000
D) 100

Question 66

Which of the following statements regarding the reorder point (ROP) model is true?

A) The model tells us that it is the time to buy.
B) The model does not tells us how much to buy.
C) The model continuously reviews the inventory position and triggers an order as soon as the inventory position falls to the preset reorder point.
D) All of the above are true.

Question 67

Kitchens Unlimited has an inventory decision rule which states that "when the inventory level goes down to 20 cabinets, an order for 50 cabinets will be placed." Which of the following statements best describes their inventory management policy?

A) They are pursuing a reorder point policy.
B) They monitor their inventory continuously.
C) Twenty is the amount of the safety stock, and 50 is the order quantity.
D) All of these statements are true.

Question 68

The hospital now changes suppliers and the lead time is known to be four days. If the standard deviation of the demand for surgical stents is 6 per week, demand averages 50 per week, and the desired service level is still 95 percent, what is the approximate reorder point?

A) 200 stents
B) 220 stents
C) 90 stents
D) 240 stents

Question 69

The purpose of safety stock is to

A) control the likelihood of a stock-out due to the variability of demand during lead time
B) always have replacement items in case of defects
C) maintain quality standards
D) guard against dramatic decreases in demand

Question 70

Which of the following statements regarding inventory models is true?

A) Models using normal distribution assumptions may not represent situations with highly variable daily demand.
B) Models do not have to be consistent with the operational realities of production line and resource constraints.
C) It is usually safe to assume the cost of capital is negligible.
D) Catastrophic events can be reasonably incorporated in working models by use of simulation.

Question 71

Which of the following is not a recent trend in managing inventory?

A) the use of truly intelligent integrated supply chain management systems
B) the use of statistical quality control for accurate shipments
C) the use of RFID (radio frequency identification devices) technologies permeating down to the SKU level
D) the use of distributed order management (DOM) to capture orders from multiple channels

Question 72

Managers can reduce inventory through all of the following demand management levers except

A) forecasting
B) component sharing across products
C) unplanned shortages
D) product/component substitution

Question 73

Supply management levers help reduce inventory through

A) simplified supply chains
B) lead time length and variability reduction
C) quick decision making
D) all of the above

Question 74

_________ is a product or service that can be made or provided and stored in advanced of anticipated customer demand.

Question 75

_________ is an analytical approach to making intelligent cost and customer service driven decisions.

Question 76

_________ inventory turnover will lead to _________ inventory levels and cash savings.

Question 77

Average_________ is a measure of how much we carry on average, on any given day, over a specific time period.

Question 78

_________ and _________ costs are the two categories of direct costs of holding inventory.

Question 79

The _________ system is a method for dividing on-hand inventory into three classifications based on total dollar sales.

Question 80

_________ and _________ analysis are two other inventory management prioritization techniques in addition to the ABC classification system.