Exam 9: Inventory Management

Scenario 9.5 Tom Bergman,owner and operator of the Earplug Superstore,is reviewing the costs associated with the store's best-selling hearing aid,the BZ15.The data available to Dr.Bergman concerning this device follow. Demand = 25 units/week Order cost = $3/order Holding cost = $1.50/unit/year The Earplug Superstore operates 52 weeks a year. -Use the information in Scenario 9.5.Tom cuts the ordering cost in half by implementing a streamlined processing system.How many fewer units should he now order each time he places an order?

________ inventory is the portion of total inventory that varies directly with lot size.

Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.

What assumptions are made in calculating the economic order quantity? Which of these assumptions is the least realistic? Why?

Scenario 9.2 Shipments of Product X from a plant to a wholesaler are made in lots of 600.The wholesaler's average demand for X is 100 units per week.The lead time from the plant to the wholesaler is 4 weeks.The wholesaler pays for the shipments when they leave the plant. -Refer to Scenario 9.2.If the plant reduces its lead time from 4 to 2 weeks and keeps its 600 unit lot size,what is the wholesaler's new total cycle plus pipeline inventories?

Table 9.1 Inventory records show the following: -Use Table 9.1 to identify the best statement.

ABC analysis is a process for categorizing SKUs according to dollar usage so that managers can focus on items with the highest dollar value.

Scenario 9.9 "Gollee those cats sure go through a lot of food," Geoff exclaimed as he saw the shopping list pad that had been pre-printed with the words "cat food" a the top.He pondered a different approach to shopping for the furry little darlings,reviewed his shopping records,and discovered the following.The price of cat food has held steady at 89 cents per can.Despite feigning indifference,each of the seven cats nibbles their way through an average of one can per day,three hundred sixty five days a year.The price of gasoline has held constant at $3.50 per gallon and his pickup uses a gallon each way to the cat food store.The cost to hold a can of cat food is 10% of the unit price. -Use the information in Scenario 9.9 to determine the annual setup cost if Geoff follows an EOQ policy to obtain cat food.

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

In an EOQ model,as the annual demand for an item increases,the EOQ for the item ________.

Scenario 9.7 Cranium,Inc. ,purchases term papers from an overseas supplier under a continuous review system.The average demand for a popular mode is 300 units a day with a standard deviation of 30 units a day.It costs $60 to process each order and there is a five-day lead-time.The holding cost for a paper is $0.25 per year and the company policy is to maintain a 98% service level.Cranium operates 200 days per year.A normal distribution table is appended to this exam. -Use the information in Scenario 9.7.What combination of changes in lead-time and service level would result in exactly the same level of safety stock as indicated in the table?

Consider the following conditions for an item used in the Hess Company's manufacturing process: Which of the following statements best describes Hess's situation regarding inventory replenishment?

An assistant manager is reviewing the costs associated with the store's best-selling product.The data available follows. Demand = 500 units/year Order cost = $40/order Holding cost = $7/unit/year a.What is the EOQ and its associated ordering and holding costs? b.If annual demand doubles and all other costs remain the same,what is the new EOQ and total annual cost?

Scenario 9.8 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces.The standard deviation in weekly demand is 20 units.The lead-time for the item is six weeks,and it costs the company $30 to process each order.The holding cost for each unit is $10 per year.The company operates 52 weeks per year.A normal distribution table is appended to this exam. -Use the information in Scenario 9.8.What is the reorder point if the company finally decides to implement a 95 percent cycle-service level?

The two-bin inventory system is a type of visual system.

Scenario 9.8 A company operating under a continuous review system has an average demand of 50 units per week for the item it produces.The standard deviation in weekly demand is 20 units.The lead-time for the item is six weeks,and it costs the company $30 to process each order.The holding cost for each unit is $10 per year.The company operates 52 weeks per year.A normal distribution table is appended to this exam. -Use the information in Scenario 9.8.What is the economic order quantity (EOQ)for this item?

The term ________ refers to the quantity of an item that is purchased from a supplier;the term ________ is used to refer to the size of the batch that is produced using internal processes.

________ inventory is the surplus inventory that a company holds to protect against uncertainties in demand,lead-time,and supply.

When looking at inventory management,the term "lot size" refers to the quantity of an inventory item management either buys from a supplier or manufactures using internal processes.

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.What is the total annual holding and ordering costs if Talbot orders using the EOQ quantity?