OPMA 317 - INVENTORY MANAGEMENT | QUESTIONS
WITH VERIFIED ANSWERS
Setup costs - Answers - Make: Set up time & admin costs for each production order
Order costs - Answers - Buy: administration costs for each purchase order
Stockout costs - Answers - Lost profit and goodwill as customer goes elsewhere for
product (may never come back)
Holding costs - Answers - Money tied up (opportunity cost), storage space, material
handling equipment, obsolescence, theft, etc
Material Costs - Quality discounts - Answers - Discount on the per unit costs if the order
exceeds a minimum
How should low-cost and smaller items be handled? - Answers - - no computer system
tracking (take as needed)
- order quantity is fill the bin
- order "trigger" is periodic to check how much is left in the bin
How should high-cost and larger items be handled? - Answers - - computer system
tracking every time the item is used (continuous)
- order quantity is analyzed and exact amount is calculated
- order "trigger" has a warning level set in the computer system
Periodic Review - Answers - Trigger to reorder is at every review period, and how much
to order is determined by a "order up to level" basis
- fixed timing, varied quantity
Continuous Review - Answers - Trigger to reorder is when inventory position falls to
reorder point or lower.
- fixed quantity, varied timing
What does capitalization mean on the inventory graph? - Answers - Capital means
fixed, lowercase means varied
Fast "usage" recording - Answers - - Press button on shelf each time an item is
taken (low admin)
- Button tied to software systems that
maintains on-hand inventory quantities (constant tracking)
WITH VERIFIED ANSWERS
Setup costs - Answers - Make: Set up time & admin costs for each production order
Order costs - Answers - Buy: administration costs for each purchase order
Stockout costs - Answers - Lost profit and goodwill as customer goes elsewhere for
product (may never come back)
Holding costs - Answers - Money tied up (opportunity cost), storage space, material
handling equipment, obsolescence, theft, etc
Material Costs - Quality discounts - Answers - Discount on the per unit costs if the order
exceeds a minimum
How should low-cost and smaller items be handled? - Answers - - no computer system
tracking (take as needed)
- order quantity is fill the bin
- order "trigger" is periodic to check how much is left in the bin
How should high-cost and larger items be handled? - Answers - - computer system
tracking every time the item is used (continuous)
- order quantity is analyzed and exact amount is calculated
- order "trigger" has a warning level set in the computer system
Periodic Review - Answers - Trigger to reorder is at every review period, and how much
to order is determined by a "order up to level" basis
- fixed timing, varied quantity
Continuous Review - Answers - Trigger to reorder is when inventory position falls to
reorder point or lower.
- fixed quantity, varied timing
What does capitalization mean on the inventory graph? - Answers - Capital means
fixed, lowercase means varied
Fast "usage" recording - Answers - - Press button on shelf each time an item is
taken (low admin)
- Button tied to software systems that
maintains on-hand inventory quantities (constant tracking)
