Deck 9: Supply Chain Inventory Management

Question 1

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

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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

Question 5

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

Question 6

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

Question 7

Setup cost is independent of order size.

Question 8

One component of the ordering cost of inventory is shrinkage.

Question 9

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

Question 10

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 11

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 12

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

Question 13

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 14

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

Question 15

One component of the holding cost of inventory is interest.

Question 16

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

Question 17

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

Question 18

The primary reason for keeping inventories low is that inventory represents a temporary monetary investment in goods on which a firm must pay interest.

Question 19

EOQ should be used if you use a make-to-order strategy and the customer specifies the entire order be delivered in one shipment.

Question 20

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 21

Considering the EOQ model,a reduction in ordering costs justifies reducing the lot sizes ordered.

Question 22

The EOQ is the smallest lot size that a supplier will allow a customer to order.

Question 23

The scheduled receipts are orders that have been placed but not yet received.

Question 24

A continuous review system is sometimes called a fixed interval reorder system.

Question 25

EOQ should be used if you follow a make-to-stock strategy and the item has relatively stable demand.

Question 26

If on-hand inventory = 100 units,scheduled receipts = 100 units and backorders = 100 units,the Inventory Position (IP)is 100 units.

Question 27

The two-bin inventory system is a type of visual system.

Question 28

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 29

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 30

A continuous review system is sometimes called a reorder point system.

Question 31

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 32

Considering the EOQ model,smaller lots are justified when holding costs are decreased.

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

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

Question 35

As the annual demand increases,the EOQ also increases.

Question 36

As the service level increases,the probability of not running out of stock during a cycle decreases.

Question 37

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 38

Which of the following generates pressure to decrease inventories?

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

Question 39

If on-hand inventory = 100 units,scheduled receipts = 100 units and backorders = 100 units,the Inventory Position (IP)is the sum of the three,or 300 units.

Question 40

A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.

Question 41

Use the following to answer the questions below.
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.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant.
Refer to the instruction above.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 42

Use the following to answer the questions below.
Shipments of Product A from a distribution center to a retailer are made in lots of 350.The retailer's average demand for A is 75 units per week.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.
Refer to the instruction above.With the change in lead times,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 43

Use the following to answer the questions below.
Shipments of Product A from a distribution center to a retailer are made in lots of 350.The retailer's average demand for A is 75 units per week.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.
Refer to the instruction above.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 44

What is generally true about the 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 45

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 46

Use the following to answer the questions below.
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.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant.
Refer to the instruction above.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 47

Use the following to answer the questions below.
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.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant.
Refer to the instruction above.Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 400 units?

A)plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks
B)plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks
C)plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks
D)plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks

Question 48

What is generally true about the 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 49

ABC analysis is closely related to:

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

Question 50

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 51

What is generally true about the 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 52

Use the following to answer the questions below.
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.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant.
Refer to the instruction above.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 53

Use the following to answer the questions below.
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.Lead time from plant to wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant.
Refer to the instruction above.Which of the following situations results in the wholesaler's total cycle plus pipeline inventories amounting to 550 units?

A)plant shipment lot size of 400 and plant-to-wholesaler lead time of 2 weeks
B)plant shipment lot size of 500 and plant-to-wholesaler lead time of 3 weeks
C)plant shipment lot size of 400 and plant-to-wholesaler lead time of 3 weeks
D)plant shipment lot size of 600 and plant-to-wholesaler lead time of 4 weeks

Question 54

What is generally true about the 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 55

What is generally true about the 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 56

Use the following to answer the questions below.
Shipments of Product A from a distribution center to a retailer are made in lots of 350.The retailer's average demand for A is 75 units per week.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.
Refer to the instruction above.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 57

Items sold to a firm's customers are called:

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

Question 58

Which one of the following is NOT a method for tracking inventory and ensuring accurate records?

A)assigning responsibility to specific employees for issuing and receiving materials
B)updating the reorder points to minimize safety stock
C)cycle counting
D)logic error checks

Question 59

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 60

Which of the following does not increase repeatability?

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

Question 61

Which one of the following is not an assumption of the EOQ model?

A)Decisions for one item can be made independently of decisions made for other items.
B)There is no uncertainty in lead-time.
C)The amount of an order received is exactly equal to what was ordered,without any "short shipments" from a supplier or scrap losses in the shop.
D)Quantity discounts can be taken advantage of for large lot sizes.

Question 62

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.What are the annual ordering costs if Talbot orders using the EOQ quantity?

A)less than or equal to $1,000
B)greater than $1,000 but less than or equal to $2,500
C)greater than $2,500 but less than or equal to $4,000
D)greater than $4,000

Question 63

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.What is the economic order quantity for the XO-01?

A)less than or equal to 100 units
B)greater than 100 units but less than or equal to 180 units
C)greater than 180 units but less than or equal to 250 units
D)greater than 250 units

Question 64

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
Use the information in Scenario 9.2.What are the annual inventory holding costs if Burdell orders using the EOQ quantity?

A)less than or equal to $300
B)greater than $300 but less than or equal to $500
C)greater than $500 but less than or equal to $700
D)greater than $700

Question 65

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.The purchasing manager decides that,in order to save purchasing time,orders for the XO-01 will be placed every three months,or four times per year.How much does this approach cost Talbot in total annual holding and ordering costs (instead of Talbot ordering using the EOQ quantity)?

A)greater than $18,000
B)greater than $14,000 but less than or equal to $18,000
C)greater than $10,000 but less than or equal to $14,000
D)less than or equal to $10,000

Question 66

You have taken a job in industry and are facing your first ordering decision.As you prepare to place the order,you remember your instructor teaching you that you wouldn't use the EOQ formula if:

A)you followed a make-to-stock strategy for an item with stable demand.
B)your carrying costs and ordering costs are known and relatively stable.
C)the order size is constrained by capacity limitations such as the number or size of the delivery trucks.
D)your setup costs and holding costs remain constant and can be determined.

Question 67

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
Use the information in Scenario 9.2.What are the annual ordering costs if Burdell orders using the EOQ quantity?

A)less than or equal to $200
B)greater than $200 but less than or equal to $350
C)greater than $350 but less than or equal to $500
D)greater than $500

Question 68

The Lemma Company manufactures and sells 10 products.Ways have been found to cut both the setup and inventory holding costs in half.What effect will this have on the economic order quantities of the 10 products?

A)They will be reduced by a factor of 1.41.
B)They will not change.
C)They will be reduced by a factor of 2.00.
D)They will be increased by a factor of 1.41.

Question 69

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.How many times per year must Talbot order the XO-01 when orders are placed using the EOQ quantity?

A)less than 10 times per year
B)greater than 10 times but less than or equal to 20 times per year
C)greater than 20 times but less than or equal to 30 times per year
D)greater than 30 times per year

Question 70

Sensitivity analysis on the economic order quantity (EOQ)formula can help the operations manager answer several questions on how to manage inventories.Which one of the following questions is NOT answered by EOQ sensitivity analysis?

A)How critical are errors in estimating demand (D),inventory holding cost (H),and setup cost (S)?
B)What should happen to lot sizes if interest rates drop?
C)What should happen to cycle inventory if the demand rate increases?
D)What should happen to lot sizes if supply and lead-time uncertainty increase?

Question 71

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.What are the annual inventory holding costs if Talbot orders using the EOQ quantity?

A)less than or equal to $1,500
B)greater than $1,500 but less than or equal to $4,000
C)greater than $4,000 but less than or equal to $6,500
D)greater than $6,500

Question 72

Which one of the following statements concerning the economic order quantity (EOQ)is TRUE?

A)The EOQ is the order quantity that minimizes annual inventory holding costs.
B)An increase in demand will increase the EOQ.
C)The time between orders (TBO)will increase with an increase in holding costs.
D)The EOQ formula assumes that there are only three relevant costs: holding,transportation,and setup.

Question 73

Which one of the following statements concerning the economic order quantity (EOQ)model is TRUE?

A)An increase in holding cost will increase the EOQ.
B)A decrease in demand will increase the EOQ.
C)A decrease in holding cost will increase the EOQ.
D)None of the above is true.

Question 74

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.What is the cycle length (time between orders)when orders are placed using the EOQ quantity?

A)less than 5 days
B)greater than 5 days but less than or equal to 10 days
C)greater than 10 days but less than or equal to 15 days
D)greater than 15 days

Question 75

Scenario 9.1
The Talbot Company uses electrical assemblies to produce an array of small appliances.One of its high cost / high volume assemblies,the XO-01,has an estimated annual demand of 8,000 units.Talbot estimates the cost to place an order is $50,and the holding cost for each assembly is $20 per year.The company operates 250 days per year.
Use the information in Scenario 9.1.What are the total annual holding and ordering costs if Talbot orders using the EOQ quantity?

A)greater than $7,000
B)greater than $5,000 but less than or equal to $7,000
C)greater than $2,500 but less than or equal to $5,000
D)less than or equal to $2,500

Question 76

The Lemming Company implements an aggressive marketing campaign and effectively doubles the annual demand for Model 13s.Their total annual holding cost should:

A)decrease by 50%.
B)increase by 100%.
C)stay the same.
D)increase by 40%.

Question 77

A company operating under an EOQ policy enjoys rising annual demand for their products for three consecutive years.During this time their holding cost and ordering cost remain constant.Which statement is best?

A)Their order quantity will fall and so will the time between orders.
B)Their order quantity will fall but the time between orders will rise.
C)Their order quantity will rise but the time between orders will fall.
D)Their order quantity will rise and so will the time between orders.

Question 78

Scenario 9.2
The Burdell Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes.One of these gear assemblies,the "Smooth Shifter",is used for the two most expensive of Burdell's four models,and has an estimated annual demand of 300 units.Burdell estimates the cost to place an order is $40,and the holding cost for each assembly is $60 per year.The company operates 250 days per year.
Use the information in Scenario 9.2.What is the economic order quantity for the Smooth Shifter?

A)less than or equal to 40 units
B)greater than 40 units but less than or equal to 80 units
C)greater than 80 units but less than or equal to 120 units
D)greater than 120 units

Question 79

Vilas County Hospital consumed 400 boxes of bandages per week last year.The price of bandages was $80 per box,and the hospital operates 52 weeks per year.The cost of processing an order was $64,and the cost of holding one box throughout a full year was 20% of the value of the material. Last year the hospital ordered bandages,on average,once every two weeks,each time ordering 800 boxes.What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?

A)less than or equal to $650
B)more than $650 and less than $1,050
C)more than $1,050 and less than $1,450
D)more than $1,450

Question 80

Which one of the following statements regarding the economic order quantity (EOQ)is TRUE?

A)The EOQ model combines several different item orders to the same supplier.
B)If an order quantity is larger than the EOQ,the annual holding cost for cycle inventory exceeds the annual ordering cost.
C)The EOQ model assumes a variable demand pattern.
D)When the interest rate drops,the inventory holding cost decreases and the EOQ decreases.