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Exam 9: Inventory Management

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Question 41

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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.

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Question 42

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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.

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Question 43

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A(n)________ is a system that allows employees to place orders when inventory visibly reaches a certain marker.

In an EOQ model,as the ordering cost for an item decreases,the EOQ for the item ________.

What is ABC analysis and how does it work?

Items,such as components or assemblies,needed to manufacture a final product are called:

Scenario 9.6 Consider the following data for an independent-demand item maintained by Angie Bonpensiero,the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/unit/year Weeks in a year = 50 -Use the information in Scenario 9.6.Due to new ordering procedures initiated by Bonpensiero,the ordering cost is drops to $4 per order.At the same time,the weekly demand increases to 64 units per week due to an increase in business.What effect do these changes have on the EOQ quantity for this item?

A store has collected the following information on one of its products: Demand = 4,500 units/year Standard deviation of weekly demand = 12 units Ordering costs = $40/order Holding costs = $3/unit/year Cycle-service level = 90% (z for 90% = 1.28) Lead-time = 2 weeks Number of weeks per year = 52 weeks a.If a firm uses the continuous review system to control the inventory,what would be the order quantity and reorder point? b.The firm decided to change to the periodic review system to control the item's inventory.For the most recent review,an inventory clerk checked the inventory of this item and found 300 units.There were no scheduled receipts or backorders at the time.How many units should be ordered? (HINT: Use the EOQ model to derive P,the time between reviews. )

A stock-keeping unit (SKU)is a specially designed container for holding a specific amount of an inventory item somewhere along the supply chain.

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

Inventory ________ cost is the variable cost of keeping items on hand,such as storage and handling,taxes,insurance,and shrinkage.

Scenario 9.1 Shipments of Product A from a distribution center to a retailer are made in lots of 350.The retailer's average demand for Product A is 75 units per week.The 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 units per shipment. -Refer to Scenario 9.1.The net impact on the retailer will be:

A(n)________ is an order that cannot be satisfied,resulting in the loss of a sale.

Scenario 9.12 Demand = 100,000 units/year Number of days per year = 250 weeks Standard deviation of weekly demand = 50 units Average lead time = 5 days Standard deviation of lead time: 2 days Cycle-service level = 99% A continuous review system is used to control inventory. A normal distribution table is appended to this exam. -Use the information in Scenario 9.12.If the firm decides to reduce its cycle-service level to 95%,what is the new reorder point if all other parameters remain the same for this product?

Which of the following does not increase repeatability?

Scenario 9.3 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 9.3.How many times per year must Talbot order the XO-01 when orders are placed using the EOQ quantity?

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

Although lower inventories and a just-in-time approach receive considerable attention in the business media,some organizations prefer high levels of inventory.Why would they want to hold a large inventory?

The Hastings Company is a nation-wide wholesaler for small electronic devices.One of its most popular items is a new GPS unit called the WAMI-1000.Hastings has gathered the following information,and has asked you to develop a continuous review inventory control system for this item: Order quantity for each order placed with manufacturer = 10,000 units Average demand = 1,000 units/week Standard deviation of weekly demand = 200 units Average lead time = 5 weeks Standard deviation of lead time: 1.5 weeks Cycle-service level = 90% (z for 90% = 1.28) a.What is the standard deviation of demand during lead time? b.What is the safety stock level that should be carried for the WAMI-1000? c.What is the reorder point for the WAMI-1000? d.Summarize the actions Hastings should take using your new inventory system. e.If Hastings decides to increase its cycle-service level from 90% to 95% (z for 95% = 1.65),how does this change the actions that should be taken?

What are the secondary levers for safety stock inventory?