40 Questions
What type of inventory requires close monitoring and tight control?
X class items
What is the primary purpose of XYZ analysis?
To determine the inventory valuation inside the stores
What type of inventory management involves having an additional set of goods on hand as a preventive measure for market volatility?
Safety stock
What type of items would come to a halt or be drastically affected if they are not available?
Vital items
What is the purpose of identifying and managing obsolete inventory?
To identify and manage for disposal or sale
What is a characteristic of static models in production planning and control?
They operate within a fixed time frame
What is an application of static models in production planning and control?
Production scheduling
What are the two main aspects of inventory problems?
Procurement of commodity and its future demand
What are the three categories of knowledge of demand?
Exact future demand, probability distribution, and uncertain demand
What type of inventory is classified as those items whose stock-out cost is very high for the company?
Essential items
What is the distinction between outside supply and self-supply or self-manufacturing?
Outside supply involves a probability distribution of time lag, while self-supply has a constant time lag
What is the purpose of FSN analysis?
To control obsolescence
What is a limitation of static models in production planning and control?
They might not be suitable for addressing scenarios with significant variations
What is the difference between one-shot decision and repetitive decision?
One-shot decision involves a single purchase, while repetitive decision involves multiple purchases
What is the difference between constant and probability distribution of demand?
Constant demand is expected over a span of time, while probability distribution of demand varies with time
What is the significance of time lag in inventory problems?
It affects the procurement process and decision-making
What is the primary purpose of incremental analysis?
To assess the financial impact of a specific business decision
What is the term for the financial impact associated with uncertainties and potential disruptions in production planning and control?
Cost of risk
Which of the following is NOT a common decision criterion under uncertainty?
Efficiency measurement
What is the primary goal of managing the cost of risk in production planning and control?
To ensure operational resilience and optimize business performance
What is scenario analysis used for in production planning and control?
To evaluate the potential costs and benefits of different production scenarios
What is the term for the ability to adapt and change production plans quickly in response to unforeseen events or changes in market conditions?
Flexibility
What is the primary purpose of lead time in production planning and control?
To consider the time required to implement various production plans
What is the primary difference between incremental analysis and cost-benefit analysis?
Incremental analysis evaluates the impact of changes in production levels, while cost-benefit analysis evaluates the potential costs and benefits of different production scenarios
What is the primary purpose of inventory management in production planning and control?
To meet customer demand and support production activities
What is the classification of inventory based on importance, price, and sales volume?
ABC analysis
What is the primary benefit of applying the ABC analysis of inventory control?
Minimizing the costs of carrying products
What is the characteristic of A class items in the ABC analysis?
Expensive, high-class items with tight controls and small inventories
What is the main purpose of batch tracking in inventory management?
To group goods of the same production date and materials together
What is the primary goal of effective inventory management?
To achieve a balance between supply and demand
What type of inventory includes components, work-in-progress, and finished goods?
Production inventory
What is the primary benefit of implementing effective inventory management?
Optimizing costs and enhancing overall operational efficiency
What is the primary objective of carrying inventory in a company?
To ensure the availability of sufficient goods to meet anticipated demand
What type of cost is involved in the analysis of inventory problems, which is related to the hiring and firing of employees?
Set up cost
What is the purpose of VED analysis in inventory management?
To determine the level of inventory control for vital, essential, and desirable parts
What is the primary reason for holding stocks, according to the objectives of carrying inventory?
To ensure the availability of sufficient goods to meet anticipated demand
What is the classification of inventory items in ABC analysis, which requires a moderate level of control?
B category
What is the term used to describe the cost of carrying and not carrying inventory?
Stockage cost
What is the purpose of ABC analysis in inventory management?
To determine the level of inventory control for high, moderate, and low-cost items
What is the classification of inventory items in VED analysis, which requires a high level of inventory control?
Vital category
Study Notes
Definition of Inventory
- Inventory refers to the stock of materials, components, work-in-progress (WIP), and finished goods held at various stages of the production process.
- It represents the tangible assets that an organization maintains to meet customer demand, support production activities, and ensure a smooth and efficient operation of the supply chain.
Types of Inventory and Classification
- ABC Analysis: classifies stocks based on their importance, price, and sales volume into three categories:
- A class: expensive, high-class items with tight controls and small inventories
- B class: average-priced, mid-priority items with medium sales volume and stocks
- C class: low-value, low-cost items with high sales and huge inventories
- Batch Tracking: groups goods of the same production date and materials together to track information such as origin, destination, and expiration date.
- Safety Stock: an additional set of goods held as a preventive measure for market volatility, ensuring a smooth flow of materials and covering uncertainties in supply performance.
Structure of Inventory Problems and Analysis
- Two aspects: procurement of commodities and future demand
- Six components of inventory problems:
- Knowledge of demand: certainty, risk, and uncertainty
- Procurement process: outside supply and self-supply
- Decision process: one-shot and repetitive decisions
- Probability distribution of demand: constant or varying with time
- Time lag: constant or probabilistic
- Relevant cost considerations: procurement, setup, carrying, and systemic costs
Objectives of Carrying Inventories
- To ensure availability of sufficient goods to meet anticipated demand
- To absorb variations in demand and production
- To provide a buffer between production processes
- To obtain discounts on bulk purchases
- To meet possible shortages in the future
- To absorb seasonal fluctuations in demand
- To retain a smooth production process
- To serve as a necessary part of the process
Selective Inventory Analysis
- ABC Analysis: classifies inventory items into three categories based on their importance and control level
- VED Analysis: classifies inventory items into vital, essential, and desirable categories based on their criticality for the industry or company
- FAST, SLOW, & NON-MOVING (FSN) Analysis: classifies inventory items into three categories based on their usage frequency
- XYZ Analysis: classifies inventory items into three categories based on their variability of demand and stock value
Static Model
- A mathematical or analytical representation of a production system that does not change over time
- Characteristics:
- Fixed time frame
- No consideration of time dynamics
- Steady-state assumption
- Limited adaptability
- Applications:
- Production scheduling
- Inventory management
- Capacity planning
Incremental Analysis
- A decision-making tool that evaluates the impact of changes in production levels or other variables on the overall cost and profitability
- Steps:
- Identify relevant factors
- Calculate incremental costs and revenues
- Compare incremental values
- Make informed decisions
- Example: analyzing the additional costs and revenues associated with increasing production by 100 units
Cost of Risk and Decision Criteria Under Uncertainty
- Cost of risk: the financial impact of uncertainties and potential disruptions in production planning and control
- Decision criteria:
- Risk tolerance
- Flexibility
- Cost-benefit analysis
- Resilience
- Lead time
- Scenario analysis
Learn about the definition of inventory, its role in the production process, and the ABC Analysis classification method.
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