Q&A Hero

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

Q: 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.

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

Q: 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.

Q: Obsolescence costs are one component of inventory carrying costs.

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

Q: The range of inventory carrying costs in the United States in the twenty-first century has been between 22 and 27 percent.

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

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

Q: Psychic stock is associated with retail stores.

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

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

Q: Buffer stock is also referred to as cycle stock.

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

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

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

Q: 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

Q: 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

Q: 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

Q: 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 of the above are true

Q: 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

Q: ____ products refer to those that customers view as being able to fill the same need or want as another product. a. copycat b. me-too c. substitute d. co-branded

Q: ____ items refer to those that are used or distributed together. a. me-too b. substitute c. co-branded d. complementary

Q: Inventory turnover can be calculated by ____. a. dividing the cost of goods sold by average inventory b. dividing average inventory by the costs of goods sold c. multiplying average inventory by 1.5 d. adding beginning and ending inventory and then dividing by two e. none of the above

Q: All of the following are suggestions for dealing with dead stock (inventory), except ____. a. aggressive marketing b. donate to charities c. make to order d. throw it away e. all of the above are suggestions

Q: Dead inventory (dead stock) refers to a product for which there is no sales during a ____ month period. a. three b. six c. twelve d. twenty-four

Q: 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

Q: ____ 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

Q: 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

Q: Concerning the EOQ model, if the ordering costs increase by 10% and the product value increases by 10%, then the EOQ will ____. a. stay unchanged b. increase c. decrease d. it depends on the particular product

Q: Concerning the EOQ model, if demand or annual usage increases by 10%, then the EOQ will ____. a. it depends on the particular product b. increase c. decrease d. stay unchanged

Q: 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 e. all are basic assumptions with the basic EOQ model

Q: 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 e. none of the above

Q: 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

Q: 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 EOQ c. base stock plus safety stock d. base stock minus safety stock

Q: 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. the higher the average cost for a stockout, the more inventory (safety stock) that should be held c. tradeoffs exist between carrying costs and stockout costs d. stockouts can be more costly than having too many items in stock e. all of the above are true

Q: 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"

Q: Which of the following is not a component of ordering (order) costs? 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 (order) costs

Q: 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

Q: Each of the following is a component of inventory carrying cost except: a. accounting cost b. storage cost c. shrinkage cost d. interest cost e. all of the above are components

Q: 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

Q: Inventory carrying costs in the United States in the twenty-first century have ranged between ____ and ____ percent. a. 4; 9 b. 9; 14 c. 14; 19 d. 19; 24

Q: All of the following statements are true, except: 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 d. all of the above are true

Q: 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

Q: ____ stock is carried to stimulate demand. a. base b. psychic c. speculative d. attractive e. none of the above

Q: ____ 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

Q: ____ stock refers to inventory that is en route between various nodes in a logistics system. a. base b. safety c. speculative d. cycle e. none of the above

Q: ____ 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

Q: ____ 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

Q: 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

Q: ____ 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

Q: How does vendor-managed inventory differ from traditional inventory management?

Q: Discuss some of the challenges that service parts logistics creates for logistics managers.

Q: Why should organizations carefully consider potential trade-offs before adopting a lean philosophy?

Q: How do the consequences of JIT go far beyond inventory management?

Q: How might a hospital's decisions with respect to substitute products differ from a supermarket's decisions with substitute products?

Q: What are substitute items, and how might they affect safety stock policies?

Q: Discuss some of the managerial challenges that complementary products present.

Q: In what ways can inventory turnover provide important insights about an organization's competitiveness and efficiency?

Q: Define what is meant by dead inventory. What are several ways to manage it?

Q: Discuss what is meant by ABC analysis of inventory. What are several measures that can be used to determine ABC status?

Q: How can inventory flow diagrams be useful to a logistics manager?

Q: What assumptions are associated with the EOQ model?

Q: Explain the logic of the EOQ model.

Q: Distinguish between a fixed order quantity and fixed order interval system. Which one generally requires more safety stock? Why?

Q: Discuss the concept of stockout costs. How can a stockout cost be calculated?

Q: What are ordering costs, and what is the trade-off between inventory carrying costs and ordering costs?

Q: Define what is meant by inventory carrying costs, and list its primary components.

Q: Distinguish among cycle, safety, pipeline, and speculative stock.

Q: What makes is difficult for managers to achieve the proper balance of inventory?

Q: How might different organizational functions have different inventory management objectives?

Q: Simple moving averages and weighted moving averages are examples of judgmental forecasting.

Q: In make-to-order situations, finished goods are produced after receiving a customer order.

Q: Demand management is important because efficient and effective supply chains have learned to match both supply and demand.

Q: Which of the following statements is false? a. good or excellent service recovery can actually result in increased customer loyalty b. approximately 40% of customers who experience a problem with purchases of less than $5 will not do business with that company again c. one service recovery guideline involves fair treatment for customers d. service recovery refers to a process for returning a customer to a state of satisfaction after a service or product has failed to live up to expectations e. all of the above are true

Q: ____ refers to the allocation of revenues and costs to customer segments or individual customers to calculate the profitability of the segments or customers. a. customer profitability analysis b. net present value c. customer lifetime value d. activity-based costing

Q: Which statement about measuring customer service is true? a. firms should choose those aspects of customer service that are easiest to measure b. firms should choose those aspects of customer service that they think are most important c. firms should use as many customer service measures as they can d. it is possible for organizations to use only one customer service metric e. all of the above are false

Q: ____ is the process of taking corrective action when measurements indicate that the goals and objectives of customer service are not being achieved. a. benchmarking b. leadership c. control d. managing

Q: ____ refers to a process that continuously identifies, understands, and adapts outstanding processes inside and outside an organization. a. environmental scanning b. quality management c. benchmarking d. continuous improvement

Q: Which of the following statements is false? a. goals tend to be broad, generalized statements regarding the overall results that the firm is trying to achieve a. objectives are more specific than goals c. a central element to the establishment of customer service goals and objectives is determining the customer's viewpoint d. goals should be specific, measurable, achievable, and cost effective e. all of the above statements are true