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Q:
Which of these statements about pipeline inventory is best? A) Shorter lead times create more pipeline inventory. B) Changing an item's lot size does not directly affect the average level of the pipeline inventory. C) Pipeline inventory exists to avoid customer service problems. D) Pipeline inventory is used to even out volatile fluctuations in supply or demand.
Q:
Items sold to a firm's customers are called:
A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.
Q:
Items, such as components or assemblies, needed to manufacture a final product are called:
A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.
Q:
Inventories needed for the production of services and goods (inputs to a firm's transformation processes) are called:
A) quarantined materials.
B) work-in-process.
C) raw materials.
D) finished goods.
Q:
Independent-demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other items held in stock.
Q:
An experienced operations manager can tell at a glance whether an item should be classified as safety stock, anticipation inventory, or cycle stock.
Q:
Dependent demand items are those items for which demand is influenced by market conditions and is not related to inventory decisions for any other item held in stock.
Q:
Although lower inventories and a just-in-time approach receive considerable attention in the business media, some organizations prefer high levels of inventory. Why would they want to hold a large inventory?
Q:
What are the components of holding cost?
Q:
________ is the cost of preparing a purchase order for a supplier or a production order for manufacturing.
Q:
A(n) ________ occurs when a customer order cannot be filled as promised or demanded but is filled later.
Q:
A(n) ________ is an order that cannot be satisfied, resulting in the loss of a sale.
Q:
________ occurs when inventory is stolen by employees and customers or when the inventory cannot be sold at full value owing to model changes or low demand.
Q:
Inventory ________ cost is the variable cost of keeping items on hand, such as storage and handling, taxes, insurance, and shrinkage.
Q:
________ is the opportunity cost of investing in an asset relative to the expected return on assets of similar risk.
Q:
The term ________ is used to refer to the quantity of inventory management either buys from a supplier or manufactures using internal processes.
Q:
________ is the planning and controlling of inventories in order to meet the competitive priorities of the organization.
Q:
Which of the following does not generate pressure to increase inventories?
A) transportation costs
B) backorders and stockouts
C) inventory shrinkage costs
D) quantity discounts
Q:
Which of the following does not generate pressure to decrease inventories?
A) taxes and insurance
B) inventory holding costs
C) storage and handling costs
D) ordering costs
Q:
Which of the following generates pressure to decrease inventories?
A) inventory shrinkage costs
B) backorders and stockouts
C) transportation costs
D) quantity discounts
Q:
Which of the following generates pressure to increase inventories?
A) inventory holding costs
B) ordering costs
C) storage and handling costs
D) taxes and insurance
Q:
The term lot size signifies:
A) the total production of a single SKU for a one-year period.
B) the physical dimensions of the raw materials used to make a batch of one SKU.
C) the dimensions of the container used to ship an order to any location outside of company property.
D) the number of units of a single item that a company buys from a supplier.
Q:
Increasing inventory levels can sometimes help a firm reduce both its inbound and outbound transportation costs.
Q:
Reducing setup costs will increase the pressure to keep large inventories.
Q:
Setup cost is independent of order size.
Q:
A backorder occurs when a customer order cannot be filled when it is placed, but is instead filled later.
Q:
A stockout occurs when an item that is typically stocked is not available to satisfy a demand the moment it occurs.
Q:
One component of the ordering cost of inventory is shrinkage.
Q:
One component of the holding cost of inventory is interest.
Q:
The primary reason for keeping inventories low is that inventory represents a temporary monetary investment.
Q:
When looking at inventory management, the term "lot size" refers to the quantity of an inventory item management either buys from a supplier or manufactures using internal processes.
Q:
When looking at inventory management, the term "lot size" refers to the physical dimensions of the area where the inventory is stored.
Q:
Inventory management is the planning and controlling of inventories in order to meet the competitive priorities of the organization.
Q:
A quantity discount is attractive because there is a drop in the price per unit when the order is sufficiently large.
Q:
9.1 Inventory Trade-Offs
Q:
Which one of the following statements about inventory control systems is best?
A) A single-bin system is essentially a P system, with the target inventory and current inventory position established visually.
B) A base-stock system minimizes ordering and setup costs by placing orders more infrequently.
C) The base-stock system is mostly used for inexpensive items because it maximizes cycle inventory costs.
D) Visual systems are intended for use with high-value items, such as jet engines, that don't experience a steady demand.
Q:
Which one of the following statements represents an advantage of a Q system over the P system?
A) A perpetual inventory system is not mandatory.
B) Orders for multiple items from the same supplier can be combined more easily.
C) Fixed replenishment intervals are possible, which can be, administratively, quite convenient.
D) The Q system is more suited for quantity discounts and physical limitations.
Q:
Which one of the following statements represents an advantage of the P system over the Q system?
A) Less safety stock is carried to achieve the same service level.
B) The replenishment intervals can be more easily individualized for items.
C) Orders can be more easily combined to the same supplier.
D) A P system is more suitable for quantity discounts and capacity limitations.
Q:
Which one of the following statements is best?
A) A P system requires more safety stock than a Q system.
B) A P system lends itself more to quantity discounts than does a Q system.
C) A P system requires more administrative control and computer support than does a Q system.
D) In a periodic review system, the value of Q is kept the same from one cycle to another.
Q:
An inventory system answers two important questions: when to order and how much to order. Which of the following statements correctly explains how a Q system (continuous review system) or a P system (periodic review system) answers these questions?
A) Under a Q system, a fixed quantity is ordered every P time period.
B) Under a Q system, an order is placed to replenish the inventory position up to the target level T when the inventory position reaches the reorder point R.
C) Under a P system, a fixed quantity Q is ordered when the inventory position reaches the reorder point R.
D) Under a P system, an order is placed to replenish the inventory position up to the target level T every P time periods.
Q:
A mom and pop gas station near a remote lake popular with anglers is more likely to use a periodic review system than a chain of department stores.
Q:
A periodic review system is a system in which an item's inventory position is reviewed periodically rather than continuously.
Q:
Jimmy's Egg is a specialty restaurant featuring 47 different kinds of omelettes in three different sizes. They use 60 dozen cases of eggs a day that they order from an egg factory with a lead time of five days. One fine day they stock their chiller and note that there are only 25 dozen cases of eggs remaining. They have a backorder of 15 cases and an open order of 200 cases. What is their inventory position? Should they place an order?
Q:
What is a two-bin system and how does it work?
Q:
What is a base-stock system?
Q:
Compare and contrast the Q and P systems of inventory control.
Q:
Apply your understanding of forecasting to the idea of developing a reorder point for uncertain demand. What could be done to make a reorder point more accurate?
Q:
When considering reorder points and inventory position, if an item has an inventory position of 200 units, an order will be placed only if the reorder point is ________.
Q:
A(n) ________ system is a visual system in which an item's inventory is stored at two different locations.
Q:
A(n) ________ is a system that allows employees to place orders when inventory visibly reaches a certain marker.
Q:
The ________ is the predetermined minimum level that an inventory position must reach before a fixed quantity (Q) is ordered.
Q:
________ are orders that have been placed but not yet received.
Q:
The ________ is the measurement of an item's ability to satisfy future demand.
Q:
A(n) ________ system is a system designed to track the remaining inventory of an item each time a withdrawal is made to determine whether to replenish the item.
Q:
Scenario 9.12 Demand = 100,000 units/year Number of days per year = 250 weeks Standard deviation of weekly demand = 50 units Average lead time = 5 days Standard deviation of lead time: 2 days Cycle-service level = 99% A continuous review system is used to control inventory. Use the information in Scenario 9.12. If the firm decides to reduce its cycle-service level to 95%, what is the new reorder point if all other parameters remain the same for this product? A) greater than 4,500 units B) greater than 3,500 units but less than or equal to 4,500 units C) greater than 2,500 units but less than or equal to 3,500 units D) greater than 1,500 units but less than or equal to 2,500 units E) greater than 0 but less than or equal to 1,500 units
Q:
Scenario 9.11 Demand = 50,000 units/week Standard deviation of weekly demand = 15,000 units Average lead time = 8 weeks Standard deviation of lead time: 3 weeks Cycle-service level = 80% A continuous review system is used to control inventory. Use the information in Scenario 9.11. If the firm decides to increase its cycle-service level to 90%, what is the new reorder point if all other parameters remain the same for this product? A) greater than 550,000 units B) greater than 400,000 units but less than or equal to 550,000 units C) greater than 250,000 units but less than or equal to 400,000 units D) greater than 150,000 units but less than or equal to 250,000 units E) greater than 0 but less than or equal to 150,000 units
Q:
Scenario 9.10 The Dolly Llama Farm keeps an average of 50 of those funny creatures on hand and each consumes a pound of grain a day, 365 days per year. Grain costs $12 for a 50 pound bag and it costs the farm $10 to make a run to the feed store to pick up an order, regardless of order size. It takes the feed store four days to acquire, mix, and bag the special blend of grains necessary to make the feed the Dolly Llama Farm prefers. Storage costs for the feed runs 15% of the unit cost as the cost of money, loss due to critters, and spoilage all add up. Refer to Scenario 9.10. The actual usage for grain depends on which llamas show up at feeding time, thus there is an average need for 50 pounds of grain each day with a standard deviation of five pounds. In addition, there is some variability in how long it takes the feed store to whip up a batch of llama feed. The standard deviation of the feed prep is one day. The farm is willing to tolerate a 2% chance of running out of feed before they can get some more hauled in. Which adjustment to their system would have the greatest impact on the reorder point? A) lower the standard deviation of the lead time to one half of a day B) decrease the service level to 90% C) increase the standard deviation of daily demand to 10 pounds D) reduce the average daily demand to 45 pounds
Q:
Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory: 80 units Open orders (scheduled receipts): 100 units Backorders: 20 units Reorder point: 150 units Quantity per order: 50 units Which of the following statements best describes Hess's situation regarding inventory replenishment? A) No action is required, since Hess's inventory position is greater than the reorder point. B) Hess should order one lot of 50 units to cover its backorders. C) Because it is incurring backorders, Hess should increase its reorder point. D) Hess should place an order for 50 units, since their inventory position is less than the reorder point.
Q:
Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory:
80 units Open orders (scheduled receipts):
100 units Backorders:
20 units What is Hess's inventory position for this item?
A) 200 units
B) 160 units
C) 180 units
D) 80 units
Q:
Consider the following conditions for an item used in the Hess Company's manufacturing process: On-hand inventory:
40 units Open orders (scheduled receipts):
100 units Backorders:
60 units Reorder point:
100 units Quantity per order:
50 units Which of the following statements best describes Hess's situation regarding inventory replenishment?
A) No action is required, since a scheduled receipt is due to be delivered to Hess.
B) To cover its backorders, Hess should order two lots of 50 units.
C) Because it is incurring backorders, Hess should increase its reorder point.
D) Hess should place an order for 50 units, since the inventory position is less than the reorder point.
Q:
Consider the following conditions for an item used in the Hess Company's manufacturing process:
On-hand inventory: 40 units
Open orders (scheduled receipts): 100 units
Backorders: 60 units
What is Hess's inventory position for this item?
A) 200 units
B) 140 units
C) 80 units
D) 40 units
Q:
The Delphi method is a process of gaining consensus from a group of experts by face-to-face, non-anonymous, debate and voting throughout several rounds of group discussion led by a moderator.
Q:
Judgment methods of forecasting should never be used with quantitative forecasting methods.
Q:
Market research is a systematic approach to determine consumer interest by gaining consensus from a group of experts while maintaining their anonymity.
Q:
Technological forecasting is an application of executive opinion to keep abreast of the latest advances in technology.
Q:
Judgment methods of forecasting are quantitative methods that use historical data on independent variables to predict demand.
Q:
Two mercenary forecasters dueled for the lucrative Surreal Farms egg production forecasting job. The farmer provided them with output levels from ten day's production and had them forecast the next ten days. The combatant's forecasts and the actual egg production are shown in the table. Which forecaster was more accurate and should be hired as a result of his performance on this trial? Actual
Forecast A
Forecast B Day 1
102
97
107 Day 2
108
105
113 Day 3
118
113
109 Day 4
130
124
119 Day 5
142
136
130 Day 6
154
148
142 Day 7
166
160
154 Day 8
181
174
167 Day 9
198
190
182 Day 10
206
202
195
Q:
What are reasonable criteria for selecting one time-series method over another?
Q:
What is the difference between mean absolute deviation (MAD) and mean squared error (MSE)?
Q:
The dispersion of forecast errors is measured by both MAD and MSE, which behave differently in the way they emphasize errors. ________ gives larger weight to errors and ________ gives smaller weight to errors.
Q:
Consider the following data concerning the performance of a forecasting method. A) The CFE is greater than 100, and the MAD is less than 50.
B) The CFE is less than 100, and the MAD is less than 50.
C) The CFE is less than 100, and the MAD is greater than 50.
D) The CFE is greater than 100, and the MAD is greater than 50.
Q:
Table 8.1 The management of an insurance company monitors the number of mistakes made by telephone service representatives for a company they have subcontracted with. The number of mistakes for the past several months appears in this table along with forecasts for errors made with three different forecasting techniques. The column labeled Exponential was created using exponential smoothing with an alpha of 0.30. The column labeled MA is forecast using a moving average of three periods. The column labeled WMA uses a 3-month weighted moving average with weights of 0.65, 0.25, and 0.10 for the most-to-least recent months. Month Mistakes Exponential MA WMA 1 55 2 61 3 71 4 77 71 62 67 5 88 73 70 74 6 100 77 79 84 7 109 84 88 95 8 122 92 99 105 9 126 101 110 117 10 126 108 119 123 Using Table 8.1, what is the mean absolute percent error for months 6-10 using the exponential smoothing forecasts? A) less than 22% B) greater than or equal to 22% but less than 24% C) greater than or equal to 24% but less than 26% D) greater than 26%
Q:
Assume that a time-series forecast is generated for future demand and subsequently it is observed that the forecast method did not accurately predict the actual demand. Specifically, the forecast errors were found to be: Mean absolute percent error = 10% Cumulative sum of forecast errors = 0 Which one of the statements concerning this forecast is true? A) The forecast has no bias but has a positive standard deviation of errors. B) The forecast has a positive bias and a standard deviation of errors equal to zero. C) The forecast has no bias and has a standard deviation of errors equal to zero. D) The forecast has a positive bias and a positive standard deviation of errors.
Q:
A tracking signal greater than zero and a mean absolute deviation greater than zero imply that the forecast has:
A) no bias and no variability of forecast error.
B) a nonzero amount of bias and a nonzero amount of forecast error variability.
C) no bias and a nonzero amount of forecast error variability.
D) a nonzero amount of bias and no variability of forecast error.
Q:
Which one of the following is most useful for measuring the bias in a forecast?
A) cumulative sum of forecast errors
B) standard deviation of forecast errors
C) mean absolute deviation of forecast errors
D) percentage forecast error in period t
Q:
Bias error causes the greatest disruption to planning efforts.
Q:
A bias error results from unpredictable factors that cause the forecast to deviate from actual demand.
Q:
Forecast error is found by subtracting the forecast from the actual demand for a given period.
Q:
Forecasts almost always contain errors.
Q:
Why are forecasts for product families typically more accurate than forecasts for the individual items within a product family?