Topic 6

Question 1

What is a major advantage of holding inventory?

Answer 1

A major advantage of inventory is that it decouples processes by acting as a buffer, allowing production to continue even when there is a problem upstream.

Question 2

What are some disadvantages of holding inventory?

Answer 2

Some disadvantages of inventory are the holding costs, risks, and opportunity costs.

Question 3

What is the goal of inventory planning?

Answer 3

Inventory planning tries to balance the costs and benefits of holding inventory.

Question 4

What is the Economic Order Quantity (EOQ)?

Answer 4

The Economic Order Quantity (EOQ) is the order quantity that best balances the costs of placing orders with the cost of holding inventory.

Question 5

What happens in a Fixed Order Quantity inventory management system?

Answer 5

In a Fixed Order Quantity inventory management system, economic order quantity (Q) is ordered whenever inventory drops to the reorder level, hence the reorder date varies.

Question 6

What happens in a Replenishment inventory management system?

Answer 6

In a Replenishment inventory management system, the reorder date is fixed and order quantity varies according to inventory level to fulfil the replenishment level.

Question 7

What is Pareto Analysis and ABC inventory classification?

Answer 7

Pareto Analysis and ABC inventory classification divides inventory into categories of:

A (5‐20% of items incurring 50‐70% of expenses)

B (30‐50% of items, 20‐30% of expenses)

C (40‐70% of items, 10‐20% of expenses).