Exam 9: Inventory Management

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

An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions?

Sketch the EOQ cost curves and describe their derivation.

________ is the cost of preparing a purchase order for a supplier or a production order for manufacturing.

Scenario 9.10 The Dolly Llama Farm keeps an average of 50 of those funny creatures on hand and each consumes a pound of grain a day, 365 days per year. Grain costs $12 for a 50 pound bag and it costs the farm $10 to make a run to the feed store to pick up an order, regardless of order size. It takes the feed store four days to acquire, mix, and bag the special blend of grains necessary to make the feed the Dolly Llama Farm prefers. Storage costs for the feed runs 15% of the unit cost as the cost of money, loss due to critters, and spoilage all add up. -Refer to Scenario 9.10. The actual usage for grain depends on which llamas show up at feeding time, thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds. In addition, there is some variability in how long it takes the feed store to whip up a batch of llama feed. The standard deviation of the feed prep is one day. The farm is willing to tolerate a 2% chance of running out of feed before they can get some more hauled in. The llamas would prefer a 0% chance, but they don't get a vote. What reorder point achieves the farm's objectives?

The ________ determines the frequency and quantity to order.

What are the key issues when implementing and operating an inventory control system?

A Theory of Constraints (TOC) advocate visits your factory and seems bemused by your use of EOQ to set your batch sizes. You launch into a brilliant defense of the EOQ. The TOC advocate grabs a piece of chalk and proceeds to sketch two sets of inventory cost curves on your pristine shop floor. What will his two different sets of cost curves look like and why?

What is ABC analysis and how does it work?

Apply your understanding of forecasting to the idea of developing a reorder point for uncertain demand. What could be done to make a reorder point more accurate?

Inventories needed for the production of services and goods (inputs to a firm's transformation processes) are called:

________ is the planning and controlling of inventories in order to meet the competitive priorities of the organization.

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.)

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

________ are the basic tactics for reducing cycle, safety stock, anticipation, and pipeline inventories in supply chains.

A store has collected the following information on one of its products: Demand = 4,000 units/year Ordering costs = $15/order Holding costs = $2/unit/year Lead-time = 5 days weeks Number of weeks per year = 50 weeks If a firm uses the continuous review system to control the inventory, what would be the order quantity?

What is a two-bin system and how does it work?

Scenario 9.4 The Mwongola Company is a small manufacturing company that uses gear assemblies to produce four different models of mountain bikes. One of these gear assemblies, the "Smooth Shifter", is used for the two most expensive of Burdell's four models, and has an estimated annual demand of 300 units. Burdell estimates the cost to place an order is $40, and the holding cost for each assembly is $60 per year. The company operates 250 days per year. -Use the information in Scenario 9.4. What is the economic order quantity for the Smooth Shifter?

A store has collected the following information on one of its products: Demand = 10,000 units/year Standard deviation of weekly demand = 25 units Ordering costs = $30/order Holding costs = $4/unit/year Cycle-service level = 95% (z for 95% = 1.65) Lead-time = 2 weeks Number of weeks per year = 50 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 200 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 mom and pop gas station near a remote lake popular with anglers is more likely to use a periodic review system than a chain of department stores.