Exam 5: Inventory Management

Table 5.10 A firm using the periodic review system (P system) reviews the status of an item every 4 weeks. The standard deviation in weekly demand is 60 units. The lead time for the item is 3 weeks, whereas demand averages 200 units per week. You will need to refer to a normal table to answer the question(s). -Use the information in Table 5.10.Suppose the firm decides on a safety stock (B)of 245 units.It is time to review the item,and the current inventory position is 700 units.How many units should be ordered? (Hint: Before answering this question,you must first compute T,the target inventory level.)

Table 5.8 Demand $= 52,000$ units/year Standard deviation of weekly demand $= 110$ units Ordering costs $= \$ 45 /$ order Holding costs $= \$ 0.50 /$ unit/year Cycle-service level $= 90 \%$ Lead time $= 2$ weeks Number of weeks per year $= 52$ weeks You will need to refer to a normal table to answer the question(s). -Use the information in Table 5.8.A firm uses the periodic review system to control the item depicted above.It reviews the item's status every three weeks (P = 3).At the most recent review an inventory clerk just checked the inventory of this item and found 1500 units.There were no scheduled receipts and no back orders.How many units should be ordered? (Hint: You must calculate T before answering this question.)

One of the ways that poorly managed inventory creates environmental waste is through scrapping of obsolescent inventory.

One of the secondary levers for reducing safety stock inventory is to reduce

________ inventory accommodates the different processing rates of individual operations in a process,smoothing the flow of items.

An item experiences an annual demand of 7200 units.It costs $8 to hold an item in inventory for one year and $16 to place an order.If the EOQ model is used,what is the time between orders? Assume that there are 52 business weeks in a year.

One of the secondary levers for reducing anticipation inventory is to

Protection interval is the time interval for which inventory must be planned when each new order is placed.

The primary lever for reducing ________ inventory is to reduce predictable variation.Secondary levers emphasize better coordination and adjusting the output rate of individual operations.

For a continuous review (Q)inventory system,with uncertain demand the time between orders (TBO)is the same for each cycle.

Inventory reduces the potential for stockouts and backorders.

Explain the meaning and significance of safety stock in managing inventory

Describe the two main costs that are included in calculating the total annual cost of inventory,and explain the nature of the tradeoff between these costs in calculating the economic order quantity (EOQ).

Table 5.2 Consider the following data for an independent demand item maintained by Vicki Crittenden, the proprietor of a local auto repair shop: Weekly demand = 50 units Ordering cost = $8/order Holding cost = $4/order Weeks in a year = 50 -Use the information in Table 5.2.Due to new ordering procedures initiated by Crittenden,the ordering cost is dropping to $4/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 stockout is a customer order that cannot be filled when promised or demanded but is filled later.

Which one of the following statements about inventory control systems is best?

Inventory is a stock of items used to satisfy customer demand or support the production of goods or services.

Cynthia Korinsky,manager of a large medical supply house that operates 50 weeks per year and 5 days per week,has decided to implement a periodic review system for all class A items.One such item has the following characteristics: Demand = 10,000 units/year (or 40 units per workday) Order cost = $50/order Holding cost = $5/unit/year If Korinsky wishes to minimize total cost (thereby approximating the EOQ),what should be P,the number of workdays between orders?

Wood County Hospital consumed 400 boxes of bandages per week last year.The price of bandages was $80 per box,and the hospital operates 52 weeks per year.The cost of processing an order was $64,and the cost of holding one box throughout a full year was 20 percent of the value of the material. Last year the hospital ordered bandages,on average,once every two weeks,each time ordering 800 boxes.What extra cost did the hospital incur that could have been avoided if the EOQ concept had been applied?

The goal of ABC analysis is to