Deck 15: Managing Service Inventory

Question 1

Equating the annual holding and ordering costs can be used to derive the EOQ formula.

Answer 1

True

Question 2

Obsolescence is part of shortage costs.

Answer 2

False

Question 3

The strategy of maintaining a speculative inventory is known as forward hedging.

Answer 3

False

Question 4

Patients waiting for heart transplants are an example of an inventory model that has a backorder cost of zero.

Question 5

In the critical fractile ratio, the numerator refers to the cost of overestimating demand.

Question 6

Forward buying is used to avoid expensive interruptions of service, as a stock out at any stage of the physical goods distribution system would have far-reaching consequences for the other stages.

Question 7

Radio Frequency Identification (RFID) is replacing bar coding.

Question 8

One role of holding inventory is to hedge against anticipated increases in the cost of the inventoried items.

Question 9

Lead time inventories are stocks that have been ordered but not yet received.

Question 10

Point-of-sale scanning became feasible only when industry agreed upon a universal system of bar coding.

Question 11

POS scanning is used to initiate a purchase order to a pre-approved vendor automatically when the stock levels are depleted (or reach a reorder point).

Question 12

'Shelf life' can be a constraint on the amount of inventory held.

Question 13

Inventory management is concerned with two basic questions: how much to order and when to place an order.

Question 14

In retailing, profit is a function of mark-up multiplied by turnover.

Question 15

Penalties for late delivery or nondelivery are part of shortage costs.

Question 16

Dependent demand is described by a probability distribution.

Question 17

A continuous review system is generally used for Class C items in the ABC system of classification.

Question 18

Information management has been the key in allowing services to meet customer demands without incurring the expense of excess inventory.

Question 19

For the planned shortage model, when the cost of backorders approaches zero, the order quantity becomes undefined.

Question 20

ABC analysis is an application of the 80-20 rule.

Question 21

Service level influences ________.

A) reorder point and safety stock
B) reorder point and backorder quantity
C) safety stock and backorder quantity
D) backorder quantity and lead-time demand

Question 22

Taxes and insurance would fall under ________ costs.

A) ordering
B) receiving and inspection
C) holding or carrying
D) shortage

Question 23

In the 'news vendor problem', the underlying concept is that the news vendor should continue increasing the stock until the expected loss on the last sale ________ the expected revenue on the last unit stocked.

A) equals
B) just exceeds
C) is just lower than
D) greatly exceeds

Question 24

For an electronic super store using the ABC inventory classification system, ________ would fall in class A.

A) television sets
B) entertainment centers
C) stereos
D) desktop computers

Question 25

When a quantity discount is offered, the first step should be to compute ________.

A) EOQ for the highest price per unit
B) EOQ for the lowest price per unit
C) the total annual cost for the highest quantity discount
D) the total annual cost for the lowest quantity discount

Question 26

In the design of an inventory system all of the following is considered except ________.

A) type of customer demand
B) relevant inventory costs
C) constraints
D) safety stocks

Question 27

Which of the following is not a role that inventories play in a distribution system?

A) Decoupling.
B) Speculative.
C) Anticipative.
D) Cyclical.

Question 28

Which of the following features is not associated with the periodic review system?

A) Order consolidation.
B) Fixed order quantity.
C) C items.
D) Small safety stocks.

Question 29

Which one of the following is the most important for a continuous review system?

A) Constant lead time.
B) Fixed order quantity.
C) POS scanning.
D) Normal demand distribution.

Question 30

In the annual cost curve for the EOQ model, the ordering cost ________ with the order quantity.

A) increases linearly
B) decreases linearly
C) increases negative exponentially
D) decreases negative exponentially

Question 31

The elimination of paper-based documents between organizations is made possible by ________.

A) ERP
B) EDI
C) MRP
D) POS

Question 32

An inventory model with quantity discounts has all of the following features, except ________.

A) savings in manufacture
B) savings in transportation
C) increased holding costs
D) increased ordering costs

Question 33

Which one of the following is most affected by the bullwhip effect?

A) Customer.
B) Retailer.
C) Distributor.
D) Wholesaler.

Question 34

The central idea in the retail discounting model is that ________.

A) money can be made selling below cost
B) turnover of stock generates money for future investment
C) the percent mark-up over cost is discretionary
D) discount pricing generates sales

Question 35

In the ABC inventory classification, C items can best be described as ________.

A) expensive
B) among the most numerous
C) having a high stockout cost
D) requiring close attention

Question 36

Which of the following concepts is not associated with the 'news vendor problem'?

A) Breakeven analysis.
B) Incremental analysis.
C) Expected value analysis.
D) Trade-off analysis.

Question 37

Inventory management costs include all of the following, except ________.

A) ordering
B) purchase
C) receiving
D) shortage

Question 38

For seasonal items a ________ system could be used to manage inventory.

A) continuous review
B) periodic review
C) retail discounting
D) single-period model

Question 39

Which item below would not be a good candidate for a planned shortage model?

A) Exotic sports car.
B) Donor transplant organ.
C) Sale item.
D) Staple.

Question 40

The total inventory for a retailer is comprised of in-transit inventory, safety stock, and ________ inventory.

A) decoupling
B) seasonal
C) cyclical
D) speculative