Inventory Management Basics
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Questions and Answers

What is a primary benefit of employing DRP in inventory management?

  • Increased warehouse storage
  • Greater production lead time
  • Higher freight costs for customers
  • Improved customer service and on-time deliveries (correct)
  • Which factor is NOT considered in the Demand-Driven Planning (DRP) process?

  • Re-order points
  • Order quantities
  • Supplier relationship quality (correct)
  • Average performance cycle length
  • What is the main goal of Just-In-Time (JIT) inventory management?

  • Increase the level of safety stock
  • Minimize production time by increasing excess inventory
  • Align production with customer demand and reduce waste (correct)
  • Encourage larger batch production to save on costs
  • Which of the following is a key principle of JIT?

    <p>Production only when there is demand</p> Signup and view all the answers

    Which benefit is associated with JIT methodology?

    <p>Faster response to customer needs</p> Signup and view all the answers

    What is a primary reason for carrying inventory in an organization?

    <p>To ensure raw materials are available for production</p> Signup and view all the answers

    Which characteristic of inventory makes it a risky investment?

    <p>Irreversible investment of funds</p> Signup and view all the answers

    In a supply chain, which entity faces long-term risks associated with inventory?

    <p>Manufacturer</p> Signup and view all the answers

    What role does inventory play in customer service?

    <p>It provides items for after-sales support</p> Signup and view all the answers

    Which of the following is NOT a reason for maintaining inventory?

    <p>To allow for product appreciation</p> Signup and view all the answers

    Why might a wholesaler experience increased risk in managing inventory?

    <p>Because of bulk purchasing and diverse product lines</p> Signup and view all the answers

    What is one of the key reasons inventory is crucial for manufacturing organizations?

    <p>Ensures availability of spare parts and maintenance supplies</p> Signup and view all the answers

    How does inventory help in addressing uncertainties in demand and supply?

    <p>By holding larger stocks to mitigate delays</p> Signup and view all the answers

    What is the primary reason for companies to focus on resource optimization in inventory management?

    <p>To reduce inventory levels and maintain profit margins</p> Signup and view all the answers

    Which type of inventory is specifically associated with partially finished products in production?

    <p>In-process inventories</p> Signup and view all the answers

    How does advanced information technology contribute to inventory management?

    <p>By helping manage inventory efficiently and reducing stock levels</p> Signup and view all the answers

    What characterizes items classified as 'A' in ABC analysis?

    <p>They are few in number but account for a large percentage of inventory cost.</p> Signup and view all the answers

    What is a key feature of perpetual inventory control?

    <p>Daily reviews are conducted to determine replenishment needs.</p> Signup and view all the answers

    Which type of inventory is maintained to cushion against unpredictable demand fluctuations?

    <p>Fluctuation inventories</p> Signup and view all the answers

    What does the term 'Let-size inventories' refer to?

    <p>Excessive stock quantities to lower per-unit buying costs.</p> Signup and view all the answers

    Which inventory type consists of completed products that are ready for sale?

    <p>Finished goods inventories</p> Signup and view all the answers

    What characteristic of C items in inventory management is true?

    <p>They are numerous but contribute less than 10% to inventory cost.</p> Signup and view all the answers

    Which classification in VED analysis is NOT accurately described?

    <p>Vital items are reviewed periodically and ordered in bulk.</p> Signup and view all the answers

    In SAP analysis, how are items categorized regarding supply limitations?

    <p>Scarce, Available, and Plenty.</p> Signup and view all the answers

    What is a primary benefit of using the Economic Order Quantity (EOQ) model?

    <p>Helps avoid overstocking and understocking.</p> Signup and view all the answers

    Which of the following assumptions is NOT included in the EOQ formula?

    <p>Lead time is variable.</p> Signup and view all the answers

    What is the main goal of Materials Requirement Planning (MRP)?

    <p>To ensure materials are available for production at the right time.</p> Signup and view all the answers

    How does Distribution Requirement Planning (DRP) differ from MRP?

    <p>DRP is based on customer demand.</p> Signup and view all the answers

    Which type of item in SDE Classification is described as requiring imports?

    <p>S items</p> Signup and view all the answers

    Study Notes

    Inventory Management

    • Inventory refers to goods, materials, or assets held for future use, sale, or processing
    • Common in various sectors (businesses, hospitals, farms, governments)

    Inventory Components

    • Physical goods on hand at a specific time
    • Detailed list of physical assets
    • Quantity of items available
    • Financial value of the stock

    Inventory Types

    • Raw materials
    • In-process items
    • Finished goods
    • Packaging
    • Tools, equipment, spare parts (for future demand/distribution)

    Reasons for Holding Inventory

    • Meeting production needs
    • Supporting operations
    • Customer service needs
    • Hedging against future expectations

    Inventory Characteristics

    • Irreversible investment (funds cannot be repurposed)
    • Risks: theft, obsolescence, depreciation

    Inventory Risks by Role in Supply Chain

    • Manufacturer: Long-term risks from raw materials to finished goods, risks transferring inventory between warehouses
    • Wholesaler: Multiple product lines, bulk buying, selling in lots, seasonal items lead to risks stocking well in advance

    The Need for Inventory Control

    • Essential for manufacturing organizations to match production with customer demands
    • Ensures raw materials, components, and parts are available
    • Provides spare parts, lubricants, and maintenance supplies
    • Improves customer satisfaction and competitive advantage

    Inventory Management Techniques

    • ABC Analysis: Classifies items based on inventory cost (A - high, B - moderate, C - low)
    • VED Analysis: Classifies items as Vital, Essential, or Desirable based on operational importance
    • SAP Analysis: Categorizes items based on supply limitations (Scarce, Available, Plenty)
    • FSN Analysis: Categorizes items as fast-moving, slow-moving, or normal-moving
    • SDE Classification: Classifies items based on availability (Scarce, Difficult to obtain, Easily available)

    Inventory Planning Models

    • Economic Order Quantity (EOQ): A fundamental formula to minimize total inventory costs (ordering costs + holding costs)

    EOQ Formula

    • EOQ = √(2DS/H)
      • D = Annual demand
      • S = Ordering cost per order
      • H = Holding cost per unit per year

    Material Requirements Planning (MRP)

    • System that schedules production and raw material purchases based on finished goods needs
    • Considers production schedules, system structure, and current inventory levels

    Distribution Requirements Planning (DRP)

    • Coordinates inventory across multiple distribution stages
    • Driven by customer demand, unlike MRP which is production-driven.

    Just-In-Time (JIT) Inventory

    • Minimizes inventory levels, reduces storage costs
    • Produces or acquires goods only when needed
    • Aimed to align production with customer demand

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    Description

    This quiz covers the essential components of inventory management, including types, characteristics, and reasons for holding inventory. It also addresses various risks associated with inventory in different sectors like manufacturing and wholesaling.

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