SCM Chapter 5: Inventory Management

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What is the primary function of inventory in dealing with sudden changes in market demand?

Maintaining a steady supply of raw materials
Buffering from uncertainty in the marketplace (correct)
Reducing inventory costs
Decoupling dependencies in the supply chain

Which type of demand is influenced by trends, seasonal patterns, and general market conditions?

Supply chain demand
Market-driven demand
Independent demand (correct)
Dependent demand

What is an example of a finished good?

Raw wood for furniture
Partially processed chair parts
Assembled chairs ready to deliver to customers (correct)
Lubricants for machines

What is the purpose of maintaining a safety stock of umbrellas?

To meet the sudden demand of customers for an unexpected rainy day (A) Signup and view all the answers

What is an example of a direct cost of inventory?

Cost of labor for manufacturing a chair (C) Signup and view all the answers

Which of the following is NOT a primary function of inventory?

Maximize profit (C) Signup and view all the answers

What is the primary function of inventory management in an organization?

To reduce waste and improve financial performance (C) Signup and view all the answers

What is the difference between dependent and independent demand?

Dependent demand is influenced by the demand for other items, while independent demand is not (B) Signup and view all the answers

What is the main purpose of the ABC inventory control system?

To categorize inventory items based on their importance and value (D) Signup and view all the answers

What is the term for the cost of holding or storing inventory?

Holding or carrying cost (A) Signup and view all the answers

What is one of the main benefits of effective inventory management?

Reducing waste and improving financial performance (C) Signup and view all the answers

What is the term for the total value of inventory held?

Absolute value (D) Signup and view all the answers

What is the quantity discount pricing schedule based on?

Annual demand (C) Signup and view all the answers

What is the Economic Order Quantity (EOQ) formula?

√(2ADOC/CC) (C) Signup and view all the answers

If the University Bookstore orders the EOQ quantity, what is the total annual cost?

$588,142.86 (C) Signup and view all the answers

How many times per year does the local electronics store reorder?

4.8 (C) Signup and view all the answers

What is the annual carrying cost per unit for the mail-order house?

$50 (A) Signup and view all the answers

What is the length of an order cycle for the local electronics store?

0.21 (A) Signup and view all the answers

What type of cost is associated with the electricity needed to operate a factory?

Indirect cost (D) Signup and view all the answers

Which type of cost remains constant regardless of the production output quantity?

Fixed cost (C) Signup and view all the answers

What is an example of an order cost?

Purchasing and communication costs needed to process a new wood order to suppliers (C) Signup and view all the answers

What type of cost changes depending on the level of production output quantity?

Variable cost (D) Signup and view all the answers

What is the purpose of measuring the inventory turnover ratio?

To evaluate the efficiency of inventory management (D) Signup and view all the answers

What does a higher inventory turnover ratio generally imply?

More efficient inventory management (B) Signup and view all the answers

What is the purpose of the Economic Order Quantity (EOQ) formula?

To determine the optimal order quantity to minimize total cost (C) Signup and view all the answers

What is the relationship between the ordering cost and holding cost at the EOQ?

The ordering cost equals the holding cost (D) Signup and view all the answers

What is the unit of measurement for the holding cost (H)?

Dollars per unit (B) Signup and view all the answers

What is the length of an order cycle?

The time between orders (A) Signup and view all the answers

What is the total annual cost (TC) formula?

TC = (Q / 2) H + (R / Q) I (B) Signup and view all the answers

What is the purpose of the quantity discount in EOQ?

To reduce the total cost of inventory management (C) Signup and view all the answers