Chap 7

Question 1

Raw materials and component parts

Answer 1

items brought from suppliers to use in production of a productt

Question 2

work in process inventory

Answer 2

once items enter the productions process

Question 3

finished goods inventory

Answer 3

manufacturing is complete and products are ready for sale to a customer, Held by retailers and wholesalers

Question 4

MRO inventory

Answer 4

maintenance, repair, and operating supplies
Everything needed to work/manufacture items (Cleaning supplies, toilet paper, tools)

Question 5

an item can be classified as…

Answer 5

several different types of inventory, depending on who has it and for what purpose

Question 6

4 roles of inventory

Answer 6

balancing supply and demand
buffering uncertainty in demand and supply
enabling economies of buying
enabling geographic specialization

Question 7

Cycle stocks

Answer 7

enables firms to produce or ship inventories in batches to take advantage of economies of scale

Question 8

seasonal al stocks

Answer 8

inventories used for the purpose of dealing with seasonality

Question 9

buffer stock

Answer 9

holding products to guard against potential uncertainties in demand or supply

Question 10

speculative stock

Answer 10

buying ahead of need when they believe that prices may increase or that there may be supply disruptions/shortages in the future

Question 11

transit stock

Answer 11

inventory being transported from one place to another (from plant to warehouse to retail store)

Question 12

which type of inventory matches with a role of inventory

Answer 12

balancing supply and demand (cycle and seasonal)
Buffering uncertainty (buffer)
enabling economies of buying (speculative)
enabling geographic specialization (transit)

Question 13

product cost

Answer 13

amount paid to suppliers for products that are purchased

Question 14

carrying cost

Answer 14

costs that come from holding inventory

Question 15

examples of carrying costs

Answer 15

Opportunity cost, including the cost of capital.
Cost of owning and maintaining storage space.
Taxes.
Insurance.
Costs of obsolescence, loss, and disposal.
Costs of materials handling, tracking, and management.

Question 16

order cost

Answer 16

replenishing inventories, placing and receiving orders, order preparation, order transmittal, order receiving

Question 17

setup cost

Answer 17

Administrative expenses and the expenses of rearranging a work center to produce an item. EX: cleaning after making a batch of food

Question 18

stockout cost

Answer 18

company does not have inventory available to meet demands

Question 19

two common measures of inventory asset productivity

Answer 19

inventory turnover
days of supply

Question 20

inventory turnover

Answer 20

ratio between the average amount of inventory the company holds and its level of sales

Question 21

companies that achieve high turnover rates see:

Answer 21

-Increased sales volume due to having rapid flow of new or fresh items.
-Less risk of obsolescence or need to mark down or discount prices.
-Decreased expenses related to holding inventory.
-Lower asset investment and increased asset productivity.

Question 22

dangers if the inventory rate is too high

Answer 22

-Possible lowered sales volume due to running out of needed items (see the discussion of stockouts).
-Increased cost of goods sold due to inability to produce or purchase in quantity.
-Increased purchasing, ordering, tracking, and receiving time, effort, and cost.

Question 23

turnover rates differ based on…

Answer 23

financial strategy (cost of capital), their marketing strategy (aggressiveness in meeting demand), and their operational effectiveness (how tightly they control inventories).

Question 24

days of supply

Answer 24

number of days of business operations that can be supported with the inventory on hand, given no more inventory is bought or produced

Question 25

service level

Answer 25

metrics to track how well this objective is accomplisheds

Question 26

stockout

Answer 26

demand for an item, and no inventory is available.

Question 27

how to stockout impact different types of items

Answer 27

raw/components: production is halted finished goods: lost sales and customer dissatisfaction

Question 28

how to measure stockouts

Answer 28

as the number or percentage of inventory items for which there is no inventory on hand at the time of demand

Question 29

continuous review model

Answer 29

inventory is constantly monitored to decide when a replenishment order needs to be placed

Question 30

when is a replenish order triggered

Answer 30

when inventory decreased to a level known as the reorder point

Question 31

assumptions in review models

Answer 31

both demand for an item and the suppliers lead time to replenish are constant and known with no variation

Question 32

total acquisition cost

Answer 32

the sum of all relevant inventory costs incurred each year. (holding +Carrying)

Question 33

economic order quantity

Answer 33

where carrying cost and order cost meet. the order quantity

Question 34

assumptions underlying the EOQ formulation that often dont hold true

Answer 34

-No quantity discounts—Product cost (production cost and transportation cost) is constant regardless of quantity ordered. -No lot size restrictions—It is possible to order a lot size equal to the EOQ (there are no minimum or maximum order size requirements and capital is unlimited). -No partial deliveries—The product is produced and delivered in a single batch (the entire replenishment order of inventory becomes available all at the same time). -No variability—Product demand and replenishment lead time are known and constant, and there are no quality or other problems that would introduce uncertainty in either supply or demand. -No product interactions—The ordering of one product is not tied to the ordering of some other product.

Question 35

periodic review model

Answer 35

Management system built around checking and ordering inventory at some regular interval.

Question 36

order interval

Answer 36

the time period that passes between each inventory review

Question 37

quainty ordered in each review depends on

Answer 37

how much inventory is on hand at the time of review

Question 38

uncertainty period

Answer 38

period of time in which you are uncertain about how much inventory is on hand