IDIS 343 Final Review questions and answers all are graded A+

Carrying Costs: - Answer--Cost for holding the inventory over time -Typically costs range from short term capital to about 40% per year. The average is about 25%/year of the item value in inventory. Primary cost of carrying costs - Answer-Money tied up in inventory What are the different costs for carrying costs? - Answer--Money tied up in inventory -Obsolescence -Insurance -Personal Property Taxes -Storages costs Procurement costs: - Answer--Cost of preparing the order -Cost of order transmission -Cost of production setup if appropriate -Costs of materials handling or processing at the receiving dock -Price of the goods Out of stock costs: - Answer--Lost sales cost -Backorder cost What are lost sales cost? - Answer--Profit immediately foregone -Future profits foregone through loss of goodwill What are backorder cost? - Answer--Cost of extra order handling -Additional transportation and handling costs -Possibly additional setup costsInventory holding costs components: - Answer--Insurance and taxes -Storage cost -Obsolescence cost -Cost of capital Types of inventories(6): - Answer-1. In transit (pipeline) 2. Work-in-process inventory 3. Regular/Cyclical/Seasonal 4. Safety 5. Speculative/Anticipatory 6. Obsolete/Dead Stock Where are inventories? - Answer--In between inbound/outbound transportation -at production -(production materials, inventories in process, finished goods) Reasons for keeping inventories(5): - Answer-1. Improve customer service 2. Encourage production, purchase, and transportation economies 3. Act as a hedge against price changes 4. Protect against uncertainties in demand and lead times 5. Act as a hedge against contingencies Reasons against keeping inventories(3): - Answer-1. They consume capital resources that might be put to better use somewhere else in the firm 2. They too often mask quality problems that would more immediately be solved without their presence 3. They divert management's attention away from careful planning and control of the supply and distribution channels by promoting an insular attitude about channel managementInventory Management Philosophies(5): - Answer-1. Pull 2. Push 3. Just in time 4. Supply-driven 5. Aggregate control Pull - Answer--Draws inventory into stocking location -Each stocking location is considered independent -Maximizes local control of inventories Push - Answer--Allocations production to stocking locations based on overall demand -Encourages economies of scale Just in time - Answer--Attempts to synchronize stock flows as to just meet demand as it occurs -Minimizes the need for inventory Supply-Driven - Answer--Supply quantities and timing are unknown -All supply must be accepted and processed -Inventories are controlled through demand Aggregate Control - Answer--Classification of items(Group items according to their sales level based on the 80-20 principal. -Allows different control policies for 3 different or more broad production groups ABC Analysis(Inventory Stratification) - Answer--Developed 1951 by Dickey of GE -Classify items by: relative sales volume, cash flows, lead time, or stock-out costs Pareto's Rule(80-20 Rule): - Answer--Based on mathematicians observation that many situations were dominated by a very few elements-Separates "trivial many" from "trivial few" Steps in ABC analysis: - Answer-1. Identify the SKUs that management should spend time on 2. Prioritize SKUs by their value to the firm 3. Create logical groupings 4. Adjust as needed How else to classify inventory? - Answer--Criticality to operations -profitability -Usage rate*volume dollar -Value & # customer transactions dollar -Value & criticality -Multiple dimensions(cluster analysis)