Deck 8: Inventory Management

Question 1

Inventory costs in the United States in the twenty-first century represent approximately ____ of total logistics costs.

A)One-fifth
B)One-fourth
C)One-third
D)One-half

Answer 1

C

Question 2

The EOQ determines:

A)the point at which a company should reorder
B)the point at which carrying costs equal ordering costs
C)the point at which the sum of carrying costs and ordering costs is maximized
D)the relevant inventory flow for a particular time period
E)none of the above

Answer 2

B

Question 3

Which of the following situations is likely the most damaging

A)the customer buys a substitute product that yields a higher profit for the seller
B)the customer buys a substitute product that yields a lower profit for the seller
C)the customer goes to a competitor for this purchase
D)the customer says "Call me when it's in"

Answer 3

C

Question 4

____ stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.

A)Buffer
B)Base
C)Pipeline
D)Speculative

Question 5

Inventory shrinkage:

A)is another name for inventory turnover
B)refers to the fact that more items are recorded entering than leaving warehousing facilities
C)refers to situations where the size and/or volume of inventory is decreased over time
D)refers to a technique of stabilizing unit loads by using shrink wrap packaging

Question 6

____ stock refers to inventory that is en route between various nodes in a logistics system.

A)Base
B)Safety
C)Pipeline
D)Speculative

Question 7

____ stock is carried to stimulate demand.

A)Base
B)Speculative
C)Attractive
D)Psychic

Question 8

In the United States,____ has traditionally provided a convenient starting point when estimating the interest charges associated with maintaining inventory.

A)Gross Domestic Product growth
B)Consumer Price Index
C)The prime rate of interest
D)The yield on US Treasury bills

Question 9

Under conditions of certainty,a reorder point is equal to:

A)average daily demand in units times the length of the replenishment cycle
B)safety stock plus an EOQ
C)base stock plus safety stock
D)base stock minus safety stock

Question 10

____ refers to stocks of goods and materials that are maintained for many purposes,the most common being to satisfy normal demand patterns.

A)Logistics
B)Supply chain management
C)Inventory
D)Production

Question 11

The economic order quantity

A)order; stockout
B)stockout; carrying
C)carrying; ordering
D)accounting; carrying

Question 12

____ stock refers to inventory that is held for several reasons,to include seasonal demand,projected price increases,and potential shortages of product.

A)Base
B)Safety
C)Pipeline
D)Speculative

Question 13

Which of the following statements is false?

A)with respect to stockouts,a delayed sale is virtually costless because of the customer's brand loyalty
B)the higher the average cost of a stockout,the more inventory
C)tradeoffs exist between carrying costs and stockout costs
D)stockouts can be more costly than having too many items in stock
E)all are true

Question 14

____ stock refers to inventory that is needed to satisfy normal demand during the course of an order cycle.

A)Psychic
B)Speculative
C)Base
D)Pipeline

Question 15

Which of the following is not an assumption associated with the basic EOQ model?

A)No inventory in transit
B)An infinite planning horizon
C)Stockouts are permitted
D)A constant and known replenishment or lead time
E)All are assumptions associated with the basic EOQ model

Question 16

Which of the following is not a component of ordering

A)Costs of preparing invoices
B)Costs of receiving orders
C)Costs of verifying inventory availability
D)Costs of conducting a credit check
E)All are components of ordering

Question 17

Each of the following is a component of inventory carrying cost except:

A)storage cost
B)accounting cost
C)shrinkage cost
D)interest cost
E)all are components

Question 18

Holding high levels of inventory result in ____ inventory carrying costs and ____ stockout costs.

A)High; high
B)High; low
C)Low; high
D)Low; low

Question 19

All of the following statements are true,except:

A)in general,inventory carrying costs are expressed in percentage terms
B)in general,companies prefer to carry less inventory as carrying costs increase
C)inventory carrying costs consist of a number of different components or factors
D)the importance of individual carrying costs factors
E)all are true

Question 20

Inventory carrying costs in the United States in the twenty-first century have ranged between ____ and ____ percent.

A)10; 15
B)15; 20
C)20; 25
D)25; 30

Question 21

Inventory flow diagrams illustrate that safety stock can prevent two problem areas,____ and ____.

A)increased rate of demand; longer-than-normal replenishment
B)decreased rate of demand; shorter-than-normal replenishment
C)increased rate of demand; shorter-than-normal replenishment
D)decreased rate of demand; longer-than-normal replenishment

Question 22

Under ____,the size and timing of replenishment orders are the responsibility of the manufacturer.

A)Quick Response
B)Supply Chain Management
C)Vendor-Managed Inventory
D)Efficient Consumer Response

Question 23

Dead inventory

A)Three
B)Six
C)Twelve
D)Twenty-four

Question 24

Which of the following statements about service parts logistics is false?

A)Customer expectations for service parts logistics continues to increase
B)Some organizations outsource their service parts logistics to companies that specialize in this area
C)Service parts logistics creates a variety of potential challenges for logisticians
D)The worldwide economic slowdown of 2008 and 2009 caused a decreased emphasis on service parts logistics
E)All of the above are true

Question 25

____ items refer to those that are used or distributed together.

A)Me-too
B)Substitute
C)Co-branded
D)Complementary

Question 26

Which of the following statements about the lean approach and JIT is false?

A)JIT tends to focus on product movement from manufacturer to retailer
B)organizations should give careful consideration before adopting a lean philosophy
C)the lean approach views inventory as waste
D)trucking is an important mode of transportation in JIT systems
E)all are true

Question 27

Concerning the EOQ model,if demand or annual usage increases by 10%,then the EOQ will:

A)increase
B)decrease
C)stay unchanged
D)it depends on the particular product

Question 28

____ products refer to products that customers view as being able to fill the same need or want as another product.

A)Copycat
B)Cannibalized
C)Substitute
D)Complementary

Question 29

Concerning the EOQ model,if the ordering costs increase by 10% and the product value increases by 10%,then the EOQ will:

A)increase
B)decrease
C)stay unchanged
D)it depends on the particular product

Question 30

Which of the following is not a potential benefit to vendor-managed inventory

A)reduced order errors
B)improved demand forecasts
C)reduced inventories
D)fewer stockouts
E)all are VMI benefits

Question 31

Safety stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.

Question 32

____ recognizes that all inventories are not of equal value to a firm and thus all inventories should not be managed in the same way.

A)Vendor-managed inventory
B)Suboptimization
C)Marginal analysis
D)ABC analysis of inventory

Question 33

Inventories are stocks of goods and materials that are maintained for many purposes.

Question 34

Different organizational functions,such as marketing and production,tend to have similar inventory management objectives.

Question 35

Inventory turnover can be calculated by:

A)adding beginning and ending inventory; divide by two
B)dividing the cost of goods sold by average inventory
C)dividing average inventory by the cost of goods sold
D)multiplying average inventory by 1.5
E)none of the above

Question 36

ABC analysis of inventory:

A)Applies activity-based costing to managing inventory
B)Recognizes that inventories are not of equal value to a firm
C)Is synonymous with vendor-managed inventory
D)Is an alternative to the EOQ model

Question 37

Inventory carries its greatest costs after value has been added through manufacturing and processing.

Question 38

Which of the following is not an example of a lean inventory approach?

A)Just-in-Time
B)Collaborative Planning,Forecasting,and Replenishment
C)Efficient Consumer Response
D)Quick Response
E)All of the above are lean inventory approaches

Question 39

All of the following are suggestions for dealing with dead stock

A)aggressive marketing
B)donate to charities
C)make to order
D)throwing it away
E)all are suggestions

Question 40

Buffer stock can also be called cycle stock.

Question 41

Because the contemporary business world is characterized by a great deal of uncertainty,the basic EOQ model can be calculated under conditions of lead time uncertainty.

Question 42

Safety stock can prevent against two problem areas: An increased rate of demand and longer-than-normal replenishment.

Question 43

The trade-off that exists between carrying and ordering costs is that they respond in opposite ways to the number of orders or size of orders.

Question 44

Inventory flow diagrams graphically depict the demand for,and replenishment of,inventory.

Question 45

Inventory tends to be one of the largest assets

Question 46

The range of inventory carrying costs in the United States in the twenty-first century has been between 20 and 25 percent.

Question 47

The higher the average cost of a stockout,the more likely a company is going to want to hold some amount of inventory

Question 48

A fixed order quantity system is more susceptible to stockouts than is a fixed order interval system.

Question 49

Pipeline stock is inventory that is en route between various fixed facilities in a logistics system.

Question 50

The EOQ is the point at which carrying costs equal ordering costs.

Question 51

Inventory shrinkage refers to the fact that products lose value through time.

Question 52

As a general rule,companies prefer to carry less inventory as the carrying cost percentage decreases.

Question 53

Not having enough items can be as bad as,and sometimes worse than,having too many items.

Question 54

The EOQ can only be calculated with respect to the number of units to be ordered.

Question 55

One assumption of the basic EOQ model is a continuous,constant,and known rate of demand.

Question 56

Psychic stock is associated with retail stores.

Question 57

Accounting cost is one of the six components of inventory carrying costs.

Question 58

One requirement of a fixed order quantity system is that the inventory must be constantly monitored.

Question 59

If demand or annual usage increases by 20%,then the relevant economic order quantity will decrease.

Question 60

A reorder point is equal to average daily demand divided by the length of the replenishment cycle.

Question 61

Marginal analysis recognizes that all inventories should not be managed in the same way.

Question 62

One way of dealing with dead stock

Question 63

Take into account the answer to question 1 and the supplier's new policy outlined in question 2 and the warehouse's new policy in question 3.Then determine Low's new EOQ.

Question 64

High inventory turnover indicates that a company is taking longer to sell its inventory.

Question 65

Many grocery chains target in-stock rates of 90 percent for individual stores so that sufficient substitutes exist for a customer to purchase a substitute item rather than go to a competing store.

Question 66

Complementary products can be defined as inventories that can be used or distributed together,such as razor blades and razors.

Question 67

The number of times that inventory is sold in a one year period is referred to as average inventory.

Question 68

In terms of ABC analysis of inventory,no more than 25% of items should be classified as "A's."

Question 69

Service parts logistics has decreased in importance in recent years.

Question 70

Temporarily,ignore your work on questions 2,3,and 4.Low's luck at the race track is over; he now must borrow money to finance his inventory of nails.Looking at the situation outlined in question 1,assume that the wholesale cost of nails is $40 per keg and that Low must pay interest at the rate of 1.5% per month on the unsold inventory.What is his new EOQ?

Question 71

Dead stock (inventory) refers to product for which there is no sales during a 12-month period.

Question 72

Assume all conditions in question 1 hold,except that Low's supplier now offers a quantity discount in the form of absorbing all or part of Low's order processing costs.For orders of 750 or more kegs of nails,the supplier will absorb all the order processing costs; for orders between 249 and 749 kegs,the supplier will absorb half.What is Low's new EOQ?

Question 73

Inventory turnover can be calculated by dividing cost of goods sold by average inventory.

Question 74

A confluence of events,such as increasing global sourcing,suggests that organizations should carefully consider the potential trade-offs before adopting a lean inventory philosophy.

Question 75

Temporarily,ignore your work on question 2.Assume that Low's warehouse offers to rent Low space on the basis of the average number of kegs Low will have in stock,rather than on the maximum number of kegs Low would need room for whenever a new shipment arrived.The storage cost per keg remains the same.Does this change the answer to Question 1? If so,what is the new answer?

Question 76

Vendor-managed inventory is can only be applied to consumer,and not industrial,products.

Question 77

Because of smaller,more frequent orders and closer supplier location,trucking tends to be an important mode of transportation in the JIT approach.

Question 78

In vendor-managed inventory,the size and timing of replenishment orders are the responsibility of the manufacturer.

Question 79

Using the EOQ methods outlined in chapter 9,how many kegs of nails should Low order at one time?

Question 80

One logistical challenge with service parts logistics is that it can be extremely difficult to forecast the demand for the necessary parts.