MGT 301 Exam 1 || very Flawless.
Why is it so important to carefully manage inventory? Where is inventory in the SC? correct
answers Inventory control is important in maintaining the right balance of stock in your
warehouses. Inventory is included in operations.
Reasons to avoid inventory correct answers 1. requires additional spaces -machines
2. opportunity cost of capital- expanding operations (locations, labor, etc.)
3. spoilage + shrinkage- food, medicine, etc.
4. obsolescence: old technology- pagers, landline, etc.
5. insurance, taxes, etc.
6. inventory can hide problems
Reasons to hold inventory correct answers 1. ensure customers needs are met
2. avoidance of losses/missed sales
3. preventing high priced, last minute production, transportation costs
4. preparation for product seasonality
5. ability to take advantage of bulk prices
6. buy now to anticipate of a price increase
7. important to maintain well-balanced inventory
Define the broad categories of inventory correct answers 1. Raw materials- unprocessed
purchased inputs
2. Work in Progress (wip)- partially processed materials not yet ready for sale
3. Finished goods- products ready for shipment
4. Maintenance, repair, operating (mro)- materials used when producing
Define the types of inventory correct answers 1. Cycle (average)- varies w/ lot/order size;
planned to be used at a set time
2. Safety stock- surplus to protect against uncertainties (demand, lead time, supply)
3. Anticipation- surplus to absorb uneven rates of demand/supply; seasonal
4. Pipeline (transit)- moving from point to point in the SC; open orders or scheduled receipts
5. Obsolete- out of date or not recent demand
Calculate inventory turnover correct answers turnover ratio- how many times inventory "turns"
in an accounting period
cost of revenue / average inventory
EOQ (order quantity) correct answers Square root (2RS/kC)
ROP correct answers formula W/ known constant demand- D x LT
if safety stock is needed to accommodate demand uncertainty- D x LT x SS
, define R, C, Q, S, k correct answers R- annual requirements (or demand) of the item in unites per
year
C- purchase cost per unit
Q- order quantity (units)
S- order of planning oe order (setup cost) ($ per order)
k- holding cost rate (%), where annual inventory carrying cost per unit=kc
TAIC correct answers Total Annual Inventory Cost= APC + AHC + AOC + AHC
AHC correct answers annual holding cost= (Q/2)kc
AOC correct answers annual ordering cost= (R/Q)S
APC correct answers Annual Purchase Cost= (RC)
inventory pattern of inventory over time (the sawtooth diagram) used to depict average inventory
correct answers Saw-Tooth Inventory diagram is a diagram used to keep track of the inventory of
a firm. It shows how the inventory level of a firm varies with time.
define a supply chain + elements correct answers a supply chain consists of the flow of
products+services from:
1. Raw materials manufacturing to retailers
2. component + immediate manufacture to end customers
3. final product manufacturing to wholesalers + distributors
tiers of supply chain correct answers tier 1- intermediate component manufacturing +
wholesalers distributors
tier 2- raw material suppliers + retailers
What is supply chain management? correct answers flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace
define vertical + horizontal integration- pros and cons of each- why today's trends are towards
horizontal correct answers Vertical- local firmed owned/controlled most SC, mass production,
poor quality, short term focus, limited customer choice
Horizontal- focus on specializations, trust based relationship w/ partners, all participants benefit,
global high quality options, boundaries between firms are blurry, omni channel order fulfillment
Today's trend- horizontal has better omni channel distribution, flexibility + responsiveness,
automation, sustainability
Sourcing correct answers to ensure the reliable supply of materials + services to hr firm @ the
lowest total cost:
Why is it so important to carefully manage inventory? Where is inventory in the SC? correct
answers Inventory control is important in maintaining the right balance of stock in your
warehouses. Inventory is included in operations.
Reasons to avoid inventory correct answers 1. requires additional spaces -machines
2. opportunity cost of capital- expanding operations (locations, labor, etc.)
3. spoilage + shrinkage- food, medicine, etc.
4. obsolescence: old technology- pagers, landline, etc.
5. insurance, taxes, etc.
6. inventory can hide problems
Reasons to hold inventory correct answers 1. ensure customers needs are met
2. avoidance of losses/missed sales
3. preventing high priced, last minute production, transportation costs
4. preparation for product seasonality
5. ability to take advantage of bulk prices
6. buy now to anticipate of a price increase
7. important to maintain well-balanced inventory
Define the broad categories of inventory correct answers 1. Raw materials- unprocessed
purchased inputs
2. Work in Progress (wip)- partially processed materials not yet ready for sale
3. Finished goods- products ready for shipment
4. Maintenance, repair, operating (mro)- materials used when producing
Define the types of inventory correct answers 1. Cycle (average)- varies w/ lot/order size;
planned to be used at a set time
2. Safety stock- surplus to protect against uncertainties (demand, lead time, supply)
3. Anticipation- surplus to absorb uneven rates of demand/supply; seasonal
4. Pipeline (transit)- moving from point to point in the SC; open orders or scheduled receipts
5. Obsolete- out of date or not recent demand
Calculate inventory turnover correct answers turnover ratio- how many times inventory "turns"
in an accounting period
cost of revenue / average inventory
EOQ (order quantity) correct answers Square root (2RS/kC)
ROP correct answers formula W/ known constant demand- D x LT
if safety stock is needed to accommodate demand uncertainty- D x LT x SS
, define R, C, Q, S, k correct answers R- annual requirements (or demand) of the item in unites per
year
C- purchase cost per unit
Q- order quantity (units)
S- order of planning oe order (setup cost) ($ per order)
k- holding cost rate (%), where annual inventory carrying cost per unit=kc
TAIC correct answers Total Annual Inventory Cost= APC + AHC + AOC + AHC
AHC correct answers annual holding cost= (Q/2)kc
AOC correct answers annual ordering cost= (R/Q)S
APC correct answers Annual Purchase Cost= (RC)
inventory pattern of inventory over time (the sawtooth diagram) used to depict average inventory
correct answers Saw-Tooth Inventory diagram is a diagram used to keep track of the inventory of
a firm. It shows how the inventory level of a firm varies with time.
define a supply chain + elements correct answers a supply chain consists of the flow of
products+services from:
1. Raw materials manufacturing to retailers
2. component + immediate manufacture to end customers
3. final product manufacturing to wholesalers + distributors
tiers of supply chain correct answers tier 1- intermediate component manufacturing +
wholesalers distributors
tier 2- raw material suppliers + retailers
What is supply chain management? correct answers flow of goods and services and includes all
processes that transform raw materials into final products. It involves the active streamlining of a
business's supply-side activities to maximize customer value and gain a competitive advantage in
the marketplace
define vertical + horizontal integration- pros and cons of each- why today's trends are towards
horizontal correct answers Vertical- local firmed owned/controlled most SC, mass production,
poor quality, short term focus, limited customer choice
Horizontal- focus on specializations, trust based relationship w/ partners, all participants benefit,
global high quality options, boundaries between firms are blurry, omni channel order fulfillment
Today's trend- horizontal has better omni channel distribution, flexibility + responsiveness,
automation, sustainability
Sourcing correct answers to ensure the reliable supply of materials + services to hr firm @ the
lowest total cost:
