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Exam 15: Inventory Management

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Question 1

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Describe ABC inventory analysis in one sentence. What are some policies that may be based upon the results of an ABC analysis?

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ABC inventory analysis is a method for d...

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Question 2

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In the production order quantity (POQ) model, inventory does not arrive in a single moment but flows in at a steady rate, resulting in a larger lot size than in an otherwise identical EOQ problem.

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Question 3

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The soft goods department of a large department store sells 175 units per month of a certain large bath towel. The unit cost of a towel to the store is $2.50 and the cost of placing an order has been estimated to be $12.00. The store uses an inventory carrying charge of 27% per year. Determine the optimal order quantity, order frequency, and the annual cost of inventory management. If, through automation of the purchasing process, the ordering cost can be cut to $4.00, what will be the new economic order quantity, order frequency, and annual inventory management cost? Explain these results.

Service level is

List the typical cost components that constitute ordering costs in inventory systems.

What is cycle counting?

Demand for a product is approximately normal, averaging 5 units per day with a standard deviation of 1 unit per day. Lead time for this product is approximately normal, averaging 10 days with a standard deviation of 3 days. What reorder point provides a service level of 90 percent?

A firm that makes electronic circuits has been ordering a certain raw material 250 ounces at a time. The firm estimates that carrying cost is 30% per year, and that ordering cost is about $20 per order. The current price of the ingredient is $200 per ounce. The assumptions of the basic EOQ model are thought to apply. For what value of annual demand is their action optimal?

Describe the difference between a fixed-quantity and a fixed-period inventory system?

In an economic order quantity problem, the total annual cost curve is at its __________ where holding costs equal setup costs.

__________ is the complement of the probability of a stockout.

A product has variable demand and constant lead time. Currently this product is managed by a fixed-period inventory system, for which the review period is one week. Lead time is four weeks. Annually about 5,200 units of this product are sold. The current target inventory is 500 units. Today is review day; 75 units are on the shelves, and orders placed at previous reviews in the amount of 110, 60, and 30 have not yet been received. There are no backorders. a. How much is the firm allowing for safety stock in this case? b. What should be the order amount this week?

A toy manufacturer makes its own wind-up motors, which are then put into its toys. While the toy manufacturing process is continuous, the motors are intermittent flow. Data on the manufacture of the motors appears below. Annual demand (D) = 50,000 units Daily subassembly production rate = 1,000 Setup cost (S) = $85 per batch Daily subassembly usage rate = 200 Carrying cost = $.20 per unit per year a. To minimize cost, how large should each batch of subassemblies be? b. Approximately how many days are required to produce a batch? c. How long is a complete cycle? d. What is the average inventory for this problem? e. What is the total inventory cost (rounded to nearest dollar) of the optimal behavior in this problem?

Lead time for one of Montegut Manufacturing's fastest moving products is 4 days. Demand during this period averages 100 units per day. What would be an appropriate re-order point?

ABC analysis is based on the presumption that carefully controlling all items is necessary to produce important inventory savings.

ABC analysis is based upon the principle that

A product has demand of 4000 units per year. Ordering cost is $20 and holding cost is $4 per unit per year. The EOQ model is appropriate. The cost-minimizing solution for this product will cost __________ per year in total annual inventory costs.

The Rushton Trash Company stocks, among many other products, a certain container, each of which occupies four square feet of warehouse space. The warehouse space currently available for storing this product is limited to 600 square feet. Demand for the product is 15,000 units per year. Holding costs are $4 per container per year; Ordering costs are $5 per order. a. What is the cost-minimizing order quantity decision for Rushton? b. What is the total inventory-related cost of this decision? c. What is the total inventory-related cost of managing the inventory of this product, when the limited amount of warehouse space is taken into account? d. What would the firm be willing to pay for additional warehouse space?

Cycle counting is an inventory control technique exclusively used for cyclical items.

Which of the following statements regarding the production order quantity model is true?