OPMA 317 FINAL QUESTIONS WITH VERIFIED
ANSWERS
Set up costs (replenishment) - Answers - (make) admin + set up time for each order
outside ordering (purchase order)
-purchasing analysis and accounts payable
in-house supply (production order)
-production set up and clerical costs
Order costs - Answers - (buy) admin costs for each order
Stockout costs - Answers - loss of profit and goodwill when a customer goes elsewhere
Holding costs (H) - Answers - money tied up (opportunity cost), storage space/handling
equip/theft
H=iC (% carrying cost per year * unit cost)
Materials cost/quantity discount - Answers - discount on the per unit cost if order
quantity is a certain size
What happens if theres poor inventory management? - Answers - -increased costs,
poor customer service/lost sales, obsolescence or theft
Inventory categories - Answers - -raw materials
-work in process
-finished goods
-supplies
Why should you hold inventory? - Answers - -avoid stockouts
-demand uncertainty
-economies of scale (bulk discounts)
-reduce transport costs
-prepare for strikes
-supplier uncertainty
Independent demand - Answers - demand for various items with no relation to each
other
Dependant demand - Answers - demand for one item is a direct result for the demand of
another item
, Higher "control" of inventory = - Answers - higher administration costs
kan ban - Answers - a system for "fill the bin"; when a bin is empty of supplies a trigger
is sent to get it refilled
Periodic review + continuous review (when to order and how much for low cost + high
cost items) - Answers - low costs (PERIODIC): order every period (monthly, weekly)
and "order up to level" (OUTL)-on hand qty
high costs (CONTINUOUS): order when on hand + on order is at reorder point or lower,
order fixed quantity
OUTL (order up to level) = - Answers - order amount = OUTL - on hand amount
Periodic review q= and t= - Answers - q=varies
t=fixed
Continuous review q= and t= - Answers - q=fixed
t=varies
advantages of periodic and continuous review - Answers - periodic adv: less expensive,
less dependent on technology, can order multiple items
continuous adv: constantly updated, small chance of running out, less inventory needed
Fast "usage" recording - Answers - press a button every time you take a low cost item;
saves admin and constantly tracks
Backflushing - Answers - when a product is completed you enter it in the system and
every part used for it is reduced by the amount used (low admin and constant tracking)
Item cost = - Answers - C*Q (unit cost * quantity)
Economic order quantity (EOQ=) - Answers - how much to order under stable, known
conditions. Balances S and H
EOQ = sqroot(2DS/H)
Total annual cost (TC) = - Answers - annual purchase cost + annual ordering costs +
annual holding costs
= DC + (D/Q)*S + (Q/2)*H
Reorder point formula = - Answers - R = avgd*L + SS
(average daily demand * replenishment lead time) + safety stock
ANSWERS
Set up costs (replenishment) - Answers - (make) admin + set up time for each order
outside ordering (purchase order)
-purchasing analysis and accounts payable
in-house supply (production order)
-production set up and clerical costs
Order costs - Answers - (buy) admin costs for each order
Stockout costs - Answers - loss of profit and goodwill when a customer goes elsewhere
Holding costs (H) - Answers - money tied up (opportunity cost), storage space/handling
equip/theft
H=iC (% carrying cost per year * unit cost)
Materials cost/quantity discount - Answers - discount on the per unit cost if order
quantity is a certain size
What happens if theres poor inventory management? - Answers - -increased costs,
poor customer service/lost sales, obsolescence or theft
Inventory categories - Answers - -raw materials
-work in process
-finished goods
-supplies
Why should you hold inventory? - Answers - -avoid stockouts
-demand uncertainty
-economies of scale (bulk discounts)
-reduce transport costs
-prepare for strikes
-supplier uncertainty
Independent demand - Answers - demand for various items with no relation to each
other
Dependant demand - Answers - demand for one item is a direct result for the demand of
another item
, Higher "control" of inventory = - Answers - higher administration costs
kan ban - Answers - a system for "fill the bin"; when a bin is empty of supplies a trigger
is sent to get it refilled
Periodic review + continuous review (when to order and how much for low cost + high
cost items) - Answers - low costs (PERIODIC): order every period (monthly, weekly)
and "order up to level" (OUTL)-on hand qty
high costs (CONTINUOUS): order when on hand + on order is at reorder point or lower,
order fixed quantity
OUTL (order up to level) = - Answers - order amount = OUTL - on hand amount
Periodic review q= and t= - Answers - q=varies
t=fixed
Continuous review q= and t= - Answers - q=fixed
t=varies
advantages of periodic and continuous review - Answers - periodic adv: less expensive,
less dependent on technology, can order multiple items
continuous adv: constantly updated, small chance of running out, less inventory needed
Fast "usage" recording - Answers - press a button every time you take a low cost item;
saves admin and constantly tracks
Backflushing - Answers - when a product is completed you enter it in the system and
every part used for it is reduced by the amount used (low admin and constant tracking)
Item cost = - Answers - C*Q (unit cost * quantity)
Economic order quantity (EOQ=) - Answers - how much to order under stable, known
conditions. Balances S and H
EOQ = sqroot(2DS/H)
Total annual cost (TC) = - Answers - annual purchase cost + annual ordering costs +
annual holding costs
= DC + (D/Q)*S + (Q/2)*H
Reorder point formula = - Answers - R = avgd*L + SS
(average daily demand * replenishment lead time) + safety stock
