Deck 8: Inventory Management

Question 1

Which of the following statements if false?
a.The importance of individual carrying costs factors (categories)is generally consistent from product to product.
b.Inventory carrying costs consist of a number of different components or factors.
c.In general,companies prefer to carry less inventory as carrying costs increase.
d.In general,inventory carrying costs are expressed in percentage terms.

Answer 1

T he importance of individual carrying costs factors (categories)is generally consistent from product to product .

Question 2

___________ stock refers to inventory that is en route between various nodes in a logistics system.
a.Pipeline
b.Safety
c.Speculative
d.Cycle

Answer 2

P ipeline

Question 3

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 3

one-third

Question 4

Which of the following costs is not a component of ordering (order)costs?
a.preparing invoices
b.receiving orders
c.verifying inventory availability
d.transporting orders

Question 5

Inventory carrying costs in the United States since 2010 have ranged between ___________ and ___________ percent.
a.4; 5
b.9; 10
c.14; 15
d.19; 20

Question 6

___________ stock refers to inventory that is needed to satisfy normal demand during the course of an order cycle.
a.Base
b.Speculative
c.Pipeline
d.Safety

Question 7

Holding high levels of inventory results in ___________ inventory carrying costs and ___________ stockout costs.
a.high; high
b.high; low
c.low; high
d.low; low

Question 8

Under conditions of certainty,a reorder point is equal to ___________.
a.average daily demand times the length of the replenishment cycle
b.safety stock plus an economic order quantity (EOQ)
c.two times base stock
d.base stock minus safety stock

Question 9

___________ 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 10

___________ stock refers to inventory that is held in addition to cycle stock to guard against uncertainty in demand and/or lead time.
a.Base
b.Pipeline
c.Speculative
d.Buffer

Question 11

Which of the following statements is false?
a.With respect to stockouts,a delayed sale is virtually costless to a company because of the customer's brand loyalty.
b.Stockouts are generally less costly than having too many items in stock.
c.The higher the average cost for a stockout,the more inventory (safety stock)that should be held.
d.Trade-offs exist between carrying costs and stockout costs.

Question 12

With respect to determining the average cost of a stockout,the higher the probability of a delayed sale,the ___________ the average stockout costs and the ___________ the inventory that needs to be held.
a.higher; higher
b.lower; lower
c.higher; lower
d.lower; higher

Question 13

Inventory shrinkage ___________.
a.refers to 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 14

___________ 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 15

Each of the following is a component of inventory carrying cost except:
a.accounting cost.
b.storage cost.
c.shrinkage cost.
d.interest cost.

Question 16

___________ stock is carried to stimulate demand.
a.Base
b.Psychic
c.Speculative
d.Attractive

Question 17

Another name for safety stock is ___________ stock.
a.base
b.buffer
c.cycle
d.speculative

Question 18

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 U.S.Treasury bills

Question 19

Which of the following situations is likely the most damaging (costly)with respect to a stockout?
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 a purchase.
d.The customer says,"Call me when it's in."

Question 20

Holding low levels of inventory results in ___________ inventory carrying costs and ___________ stockout costs.
a.high; high
b.high; low
c.low; high
d.low; low

Question 21

Inventory turnover can be calculated by ___________.
a.dividing the cost of goods sold by average inventory
b.dividing average inventory by the cost of goods sold
c.multiplying average inventory by 1.5
d.adding beginning and ending inventory and then dividing by 2

Question 22

Under ___________,the size and timing of replenishment orders are the responsibility of the manufacturer.
a.quick response (QR)
b.supply chain management
c.vendor-managed inventory
d.efficient consumer response (ECR)

Question 23

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.It is relatively easy to forecast the demand for the necessary parts.

Question 24

Which of the following is not an assumption associated with the basic economic order quantity (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

Question 25

The economic order quantity (EOQ)deals with calculating the proper order size with respect to ___________ costs and ___________ costs.
a.ordering; stockout
b.stockout; carrying
c.accounting; carrying
d.carrying; ordering

Question 26

All of the following are suggestions for dealing with dead stock (inventory)except:
a.aggressive marketing.
b.donating to charities.
c.make to stock.
d.throwing it away.

Question 27

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 28

Inventory flow diagrams illustrate that safety stock can prevent two problem areas,___________ and ___________.
a.decreased rate of demand; longer-than-normal replenishment
b.increased rate of demand; shorter-than-normal replenishment
c.decreased rate of demand; shorter-than-normal replenishment
d.increased rate of demand; longer-than-normal replenishment

Question 29

Efficient consumer response (ECR)tends to focus on ___________.
a.movement of materials and component parts from supplier to producer
b.product movement from manufacturer to retailer
c.last mile deliveries
d.filling large orders

Question 30

___________ 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.Inventory turnover
c.Inventory classification
d.ABC analysis of inventory

Question 31

___________ products refer to those that customers view as being able to fill the same need or want as another product.
a.Psychic stock
b.Complementary
c.Substitute
d.Co-branded

Question 32

Which of the following statements about vendor-managed inventory (VMI)is false?
a.Vendors might be more proficient than customers at managing inventories.
b.Vendors have more control over when and how inventory is shipped to customers.
c.There may be inadequate sharing of data between the relevant parties.
d.VMI will produce immediate benefits.

Question 33

Concerning the EOQ model,if demand or annual usage increases by 10 percent,then the EOQ will ___________.
a.It depends on the particular product.
b.increase
c.decrease
d.stay unchanged

Question 34

Which of the following is not an example of a lean inventory approach?
a.just-in-time (JIT)
b.collaborative planning,forecasting,and replenishment
c.efficient consumer response (ECR)
d.quick response (QR)

Question 35

___________ refers to the number of times inventory is sold in a one-year period.
a.Churn
b.Inventory turnover
c.Cost of goods sold
d.Average inventory

Question 36

___________ items refer to those that are used or distributed together.
a.Psychic stock
b.Substitute
c.Co-branded product mix
d.Complementary

Question 37

Dead inventory (dead stock)refers to a product for which there are no sales during a ___________-month period.
a.3
b.6
c.12
d.24

Question 38

The economic order quantity (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

Question 39

Which of the following statements about the lean approach and just-in-time (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.

Question 40

Concerning the EOQ model,if the ordering costs increase by 10 percent and the product value increases by 10 percent,then the EOQ will ___________.
a.stay unchanged
b.increase
c.decrease
d.It depends on the particular product.

Question 41

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

Question 42

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

Question 43

One assumption of the basic economy order quantity (EOQ)model is a continuous,constant,and known rate of demand.

Question 44

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

Question 45

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

Question 46

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

Question 47

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

Question 48

Obsolescence costs are one component of inventory carrying costs.

Question 49

Inventory tends to be one of the largest assets (in terms of dollar value)on a company's balance sheet.

Question 50

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

Question 51

Psychic stock is associated with retail stores.

Question 52

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

Question 53

The economy order quantity (EOQ)can only be calculated with respect to the number of units to be ordered.

Question 54

The economy order quantity (EOQ)is the point at which carrying costs equal ordering costs.

Question 55

The higher the average cost of a stockout,the more likely a company is going to want to hold some amount of inventory (safety stock)to protect against stockouts.

Question 56

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

Question 57

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

Question 58

Buffer stock is also referred to as cycle stock.

Question 59

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

Question 60

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

Question 61

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

Question 62

Efficient consumer response (ECR)and collaborative planning,forecasting,and replenishment (CPFR)are examples of lean inventory approaches.

Question 63

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

Question 64

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

Question 65

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

Question 66

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

Question 67

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 68

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 69

Service parts logistics has decreased in importance in recent years.

Question 70

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

Question 71

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

Question 72

The economy order quantity (EOQ)cannot be modified to account for one or more conditions of uncertainty.

Question 73

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

Question 74

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

Question 75

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

Question 76

The lean concept focuses on the elimination of waste.

Question 77

One way of dealing with dead stock (inventory)is for companies to simply throw it away.

Question 78

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

Question 79

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

Question 80

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