Chapter 9 Supply Chain Inventory Management

Question 1

Lot size

Answer 1

The quantity of an inventory item management either buys from a supplier or manufacturing using internal processes

Question 2

Inventory

Answer 2

A stock of materials used to satisfy customer demand or to support the production of services or goods

Question 3

Inventory holding costs

Answer 3

The sum of the cost of capital and the variable costs of keeping items on hand, such as storage and handling, taxes, insurance and shrinkage

Question 4

Stock out

Answer 4

An order that cannot be satisfied resulting in a loss of the sale

Question 5

Back order

Answer 5

A customer order that cannot be filled when promised or demanded but is filled later

Question 6

Ordering cost

Answer 6

The cost of preparing a purchase order for a supplier or a production order for manufacturing

Question 7

Setup cost

Answer 7

The cost involved in changing over a machine or workspace to produce a different item

Question 8

Quantity discount

Answer 8

A drop in the price per unit when an order is significantly large

Question 9

Raw materials RM

Answer 9

The inventories needed for the production of services or goods

Question 10

Work in progress WIP

Answer 10

Items, such as components of assemblies, needed to produce a final product in manufacturing or service operations

Question 11

Finished goods FG

Answer 11

The items in manufacturing plants, warehouses, and retail outlets that are sold to the firm’s customers

Question 12

Cycle inventory

Answer 12

The portion of total inventory that varies directly with lot size

Question 13

Lot sizing

Answer 13

The determination of how frequently and in what quantity to order inventory

Question 14

Safety stock inventory

Answer 14

Surplus inventory that a company holds to protect against uncertainties in demand, lead time, and supply changes

Question 15

Anticipation inventory

Answer 15

Inventory used to absorb uneven rates of demand or supply

Question 16

Pipeline inventory

Answer 16

Inventory that is created when an order for an item is issued but not yet received

Question 17

Repeatability

Answer 17

The degree to which the same work can be done again

Question 18

Stock keeping unit SKU

Answer 18

An individual item or product that has an identifying code and is held in inventory somewhere along the supply chain

Question 19

ABC analysis

Answer 19

The process of dividing SKUs into three classes, according to their dollar usage, so that managers can focus on items that have highest dollar value

Question 20

Cycle counting

Answer 20

An inventory control method whereby storeroom personnel physically count a small percentage of the total number of items each day, correcting errors that they find

Question 21

Economic order quantity

Answer 21

the lot size that minimizes total annual inventory holding and ordering costs

Question 22

Time between orders TBO

Answer 22

The average elapsed time between receiving (or placing) replenishment orders of Q units for a particular lot size

Question 23

Independent demand items

Answer 23

Items for which demand is influenced by market conditions and is not related to the inventory decisions for any other item held in stock or produced

Question 24

Continuous review (Q) system

Answer 24

A system designed to track the remaining inventory of a SKU each time a withdrawal is made to determine whether it is time to reorder

Question 25

Inventory position IP

Answer 25

The measurement of a SKU's ability to satisfy future demand

Question 26

Scheduled receipts SR

Answer 26

Orders that have been placed but have not been received

Question 27

Reorder point R

Answer 27

The predetermined minimum level that an inventory position must reach before a fixed quantity Q of the SKU is ordered

Question 28

Service level

Answer 28

The desired probability of not running out of stock in any one ordering cycle, which begins at the time an order is placed and ends when it arrives in stock

Question 29

Protection interval

Answer 29

The period over which safety stock must protect the user from running out of stock

Question 30

Visual system

Answer 30

A system that allows employees to place orders when inventory visibly reaches a certain marker

Question 31

Two bin system

Answer 31

A visual system version of the Q system in which a SKUs inventory is stored at two different locations

Question 32

Periodic review system P

Answer 32

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

Question 33

Single bin system

Answer 33

A system of inventory control in which a maximum level is marked on the storage shelf or bin, and the inventor is brought up to the mark periodically

Question 34

Perpetual inventory system

Answer 34

A system of inventory control in which the inventory records are always current

Question 35

Optional replenishment system

Answer 35

A system used to review the inventory position at fixed time intervals and, if the position has dropped to (or below) a predetermined level, to place a variable-sized order to cover expected needs

Question 36

Base stock system

Answer 36

An inventory control system that issues a replenishment order, Q, each time a withdrawal is made, for the same amount of the withdrawal

Question 37

Inventory management

Answer 37

The planning and controlling of inventories in order to meet the competitive priorities of the organization