Chapter 14 - Inventory

Question 1

What are three costs of low levels of stock?

Answer 1

• Increased chance of stock outs
• High cost of reordering stock
• Low quantity discounts

Question 2

What are three costs of high levels of stock?

Answer 2

• High storage costs
• Financing needed which costs ie bank loan
• Possible obsolescence e.g phones

Question 3

What does the economic order quantity do?

Answer 3

Minimize the total annual cost

Question 4

What is a Just in time policy?

Answer 4

The policy to obtain goods from suppliers at the latest possible time

Question 5

What does a company need to have a successful JIT policy?

Answer 5

A reliable supplier who can supply high quality inventory with a predictable lead time.

Question 6

What is the objective of good inventory management to determine?

Answer 6

Optimum reorder level

Optimum reorder quantity

Question 7

What is periodic review?

Answer 7

Inventory levels are reviewed at fixed intervals, e.g. every four weeks

Question 8

Who is periodic review popular with and why?

Answer 8

Suppliers - because system orders are evenly spread.

Question 9

What are the three aims of a JIT system?

Answer 9

• Smooth flow of work
• Flexibly production process
• Reduction in capital tied up in inventory

Question 10

What is the re-order level?

Answer 10

The measure of inventory at which a replenishment order should be made

Question 11

True or False?

Use of a re-order level builds in a measure of safety inventory and minimises the risk of the organisation running out of inventory.

Answer 11

True