MKT 423- Exam 3

Question 1

What are the four main reasons companies hold inventory?

Answer 1

• Time
• Uncertainty
• Economy
• Discontinuity (separation in the supply chain)

Question 2

What is cycle stock?

Answer 2

Inventory used to satisfy regular demand between orders.

Question 3

What is safety stock?

Answer 3

Extra inventory kept to protect against variability in demand/supply.

Question 4

What are the four types of inventory cost?

Answer 4

• Carrying cost
• ordering/setup cost
• stockout cost
• in-transit cost

Question 5

What are Carrying Costs?

Answer 5

Storage, insurance, risk, capital.

Question 6

What are Ordering/Setup Costs?

Answer 6

Every time you reorder.

Question 7

What are Stockout Costs

Answer 7

Lost sales or customer dissatisfaction.

Question 8

What are In-Transit Costs?

Answer 8

Costs while products are moving.

Question 9

WIP Inventory (Work-in-Process)

Answer 9

Partly finished materials within any production process

Question 10

What is the purpose of EOQ (Economic Order Quantity)?

Answer 10

To minimize the combined cost of ordering and carrying inventory.

Question 11

What is Just-In-Time (JIT) inventory?

Answer 11

Inventory arrives only as needed for production/sales, reducing carrying costs. (low inventory)

Question 12

What is MRP (Material Requirements Planning) Inventory?

Answer 12

Schedules raw materials

Question 13

What is DRP (Distribution Requirements Planning) Inventory?

Answer 13

Coordinated inventory across distribution centers.

Question 14

What is VMI (Vendor Managed) Inventory?

Answer 14

Suppliers manage your inventory.

Question 15

What are the four main functions of a distribution center?

Answer 15

• Accumulation
• Sortation
• Allocation
• Assortment

Question 16

What does Accumulation do?

Answer 16

Gathers product from multiple suppliers.

Question 17

What does Sortation do?

Answer 17

Organizes product by characteristics or customer.

Question 18

What does Allocation do?

Answer 18

Matches inventory to customer demand.

Question 19

What does Assortment do?

Answer 19

Creates multi-SKU customer orders.

Question 20

What is the difference between allocation and assortment in distribution?

Answer 20

Allocation matches inventory to customer orders; assortment mixes SKUs (stock keeping unit) into final shipments.

Question 21

Distribution vs. Transportation

Answer 21

Closer facilities = cheaper shipping but more DCs (distribution centers) = more cost

Question 22

Distribution vs. Inventory

Answer 22

More location = more safety stock

Question 23

Centralized Inventory

Answer 23

Lower inventory cost but higher shipping cost.

Question 24

Decentralized Inventory

Answer 24

Higher inventory cost but lower shipping cost.

Question 25

What is a private distribution center?

Answer 25

Company-owned; high control, high fixed cost.

Question 26

What is a public distribution center?

Answer 26

Short-term rental space; Low cost, low control.

Question 27

What is a 3PL (Third-Party Logistics provider)?

Answer 27

A company that handles outsourced logistics like warehousing, transportation, etc.

Question 28

Which mode of transportation is the most flexible and commonly used in the U.S.?

Answer 28

Trucking (Motor carriers)

Question 29

What type of transportation is best for low-cost, heavy, long-distance freight?

Answer 29

Rail or water

Question 30

What’s the difference between TL and LTL?

Answer 30

TL = Full truckload (single shipment); LTL = Less-than-truckload (shared space with multiple shipments)

Question 31

Who owns the goods and who pays the freight in FOB Origin?

Answer 31

Buyer owns the goods in transit and pays shipping.

Question 32

Who owns the goods and who pays the freight in FOB Destination?

Answer 32

Seller owns the goods in transit and seller pays shipping.

Question 33

What is intermodal transportation?

Answer 33

Using two or more transportation modes (e.g., truck + rail) in a shipment.

Question 34

What is VMI (Vendor Managed Inventory)?

Answer 34

Suppliers manage inventory levels at the buyer’s location.

Question 35

What are two main inventory positioning strategies?

Answer 35

Centralized vs. Decentralized

Question 36

What is a stockout cost?

Answer 36

The cost of running out of inventory (lost sales, reputation damage, etc.)

Question 37

What does sortation do in a DC?

Answer 37

Groups similar products for processing, storage, or shipment.

Question 38

Private Fleet Transportation

Answer 38

High control, expensive, good for regular demand.

Question 39

For-Hire Carrier Transportation

Answer 39

Flexible, avoids capital costs.

Question 40

3PL Transportation

Answer 40

Handles full transportation and logistics.