POM FINAL EXAM QUESTIONS AND
ANSWERS11
Economic Order Quantity Model - ANSWERS -Either fairly constant demand must exist or safety
stock must be kept to provide for demand variability. This model uses an estimate of total
annual demand, the setup or order cost, and the annual holding cost. Wasn't designed for a
system w/ discrete time periods. It assumes that parts are used continuously during the period.
The lot sizes generated by this do not always cover the entire number of periods.
Least Total Cost Method - ANSWERS -A dynamic lot sizing technique that calculates the order
quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes
and then selects the lot in which these are most nearly equal. This method is attractive when
ordering or setup costs remain constant b/c it is simpler and easier to compute.
Least Unit Cost - ANSWERS -A dynamic lot sizing technique that adds ordering and inventory
carrying cost for each trail lot size and divides by the number of units in each lot size, picking the
lot size w/ the lowest unit cost. Advantage of this method is that it is a more complete analysis
and would take into account ordering or setup costs that might change as the order size
increases.
customer order decoupling point - ANSWERS -A point where inventory is positioned to allow
processes or entities in the supply chain to operate independently. Selection of this point is a
strategic decision that determines customer lead times and can greatly impact inventory
investment. The closer this point is to the customer, the quicker the customer can be served.
There may be multiple of these.
Which is more expensive: raw material inventory or finished goods inventory? - ANSWERS -
Finished goods inventory.
, Single Period Model - ANSWERS -Used when we are making a one time purchase of an item. Ex:
purchasing t-shirts to sell at a one time sporting event.
Fixed Order Quantity Model - ANSWERS -Used when we want to maintain an item "in stock" and
when we resupply the item, a certain # of units must be ordered each time. Inventory for the
item is monitored until it gets down to a level where the risk of stocking out is great enough
that we are compelled to order. Aka economic order quantity, EOQ, and Q model. These are
event triggered. Initiates an order when the even of reaching a specified reorder level occurs. It
is a perpetual system which requires that every time a withdrawal from inventory or an addition
to inventory is made, records must be updated to reflect whether the reorder point has been
reached. Has no review period. Favors more expensive items b/c average inventory is lower.
More appropriate for important items such as critical repair parts b/c there is closer monitoring
and therefore quicker response to potential stock out. Also requires more time to maintain b/c
every addition or withdrawal is logged. The danger of stock out in this model occurs only during
the lead time, b/w the time an order is placed the time it is received.
Fixed Time Period Model - ANSWERS -Is is used when the item should be in stock and ready to
use. The item is ordered at certain intervals of time. Ex: every Friday morning. Often convenient
when a group of items is ordered together. Aka periodic system, periodic review system, fixed
order interval system, and P Model. These are time triggered. this model is limited to placing
orders at the end of a predetermined time period; only the passage of time triggers this
model.Counting takes place only at the review period. Frequently has a larger average inventory
b/c it must also protect against stockout during the review period T.This is desirable when
vendors make routine visits to customers and take orders for their complete line of products, or
when buyers want to combine orders to save transportation costs Order quantities vary from
period to period depending on the usage rates.
Inventory - ANSWERS -The stock of any item or resource used in an organization. We want this
to be as small as possible. Should be seen as stack of money sitting on a forklift. In services it
refers to tangible goods to be sold and the supplies necessary to administer the service. Long
cycle times are caused by large amounts of this and this is undesirable.
Inventory System - ANSWERS -The set of policies and controls that monitor levels of inventory
and determine what levels should be maintained, when stock should be replenished, and how
ANSWERS11
Economic Order Quantity Model - ANSWERS -Either fairly constant demand must exist or safety
stock must be kept to provide for demand variability. This model uses an estimate of total
annual demand, the setup or order cost, and the annual holding cost. Wasn't designed for a
system w/ discrete time periods. It assumes that parts are used continuously during the period.
The lot sizes generated by this do not always cover the entire number of periods.
Least Total Cost Method - ANSWERS -A dynamic lot sizing technique that calculates the order
quantity by comparing the carrying cost and the setup (or ordering) costs for various lot sizes
and then selects the lot in which these are most nearly equal. This method is attractive when
ordering or setup costs remain constant b/c it is simpler and easier to compute.
Least Unit Cost - ANSWERS -A dynamic lot sizing technique that adds ordering and inventory
carrying cost for each trail lot size and divides by the number of units in each lot size, picking the
lot size w/ the lowest unit cost. Advantage of this method is that it is a more complete analysis
and would take into account ordering or setup costs that might change as the order size
increases.
customer order decoupling point - ANSWERS -A point where inventory is positioned to allow
processes or entities in the supply chain to operate independently. Selection of this point is a
strategic decision that determines customer lead times and can greatly impact inventory
investment. The closer this point is to the customer, the quicker the customer can be served.
There may be multiple of these.
Which is more expensive: raw material inventory or finished goods inventory? - ANSWERS -
Finished goods inventory.
, Single Period Model - ANSWERS -Used when we are making a one time purchase of an item. Ex:
purchasing t-shirts to sell at a one time sporting event.
Fixed Order Quantity Model - ANSWERS -Used when we want to maintain an item "in stock" and
when we resupply the item, a certain # of units must be ordered each time. Inventory for the
item is monitored until it gets down to a level where the risk of stocking out is great enough
that we are compelled to order. Aka economic order quantity, EOQ, and Q model. These are
event triggered. Initiates an order when the even of reaching a specified reorder level occurs. It
is a perpetual system which requires that every time a withdrawal from inventory or an addition
to inventory is made, records must be updated to reflect whether the reorder point has been
reached. Has no review period. Favors more expensive items b/c average inventory is lower.
More appropriate for important items such as critical repair parts b/c there is closer monitoring
and therefore quicker response to potential stock out. Also requires more time to maintain b/c
every addition or withdrawal is logged. The danger of stock out in this model occurs only during
the lead time, b/w the time an order is placed the time it is received.
Fixed Time Period Model - ANSWERS -Is is used when the item should be in stock and ready to
use. The item is ordered at certain intervals of time. Ex: every Friday morning. Often convenient
when a group of items is ordered together. Aka periodic system, periodic review system, fixed
order interval system, and P Model. These are time triggered. this model is limited to placing
orders at the end of a predetermined time period; only the passage of time triggers this
model.Counting takes place only at the review period. Frequently has a larger average inventory
b/c it must also protect against stockout during the review period T.This is desirable when
vendors make routine visits to customers and take orders for their complete line of products, or
when buyers want to combine orders to save transportation costs Order quantities vary from
period to period depending on the usage rates.
Inventory - ANSWERS -The stock of any item or resource used in an organization. We want this
to be as small as possible. Should be seen as stack of money sitting on a forklift. In services it
refers to tangible goods to be sold and the supplies necessary to administer the service. Long
cycle times are caused by large amounts of this and this is undesirable.
Inventory System - ANSWERS -The set of policies and controls that monitor levels of inventory
and determine what levels should be maintained, when stock should be replenished, and how
